AUD/USD sinks to key confluence support despite upbeat trade headlines; Listen-out for RBA speakers

• AUD/USD a disappointment for Aussie bulls, sinking despite improved trade deal sentiment.
• AUD/USD bears testing a key technical confluence area.  

AUD/USD is off -0.16% at the time of writing despite recent breaking headlines that  the US and China have reached “broad consensus” for a ‘Phase One’ deal.  AUD/USD has travelled south between a high of 06799 to a low in the North American session of 0.6768.  

The Aussie took flight at the start of the week considering the potential de-escalation in US-Sino trade tensions but there has been no follow-through and bears are seeking a break of a key support level where we have a confluence of the  daily cloud, the 61.8% Fib of 0.6670-0.6929 as well as daily lows from Nov. 14 low and Oct. 17.

Traders  bitten once, twice shy

The markets and traders have been bitten once and are twice shy over-optimism on the trade front, hence we are not seeing the snowball effect on positive  headlines. It would seem that investors would prefer to see some concrete evidence  that indeed, after 16 months of tit for tat tariff wars, trade wars are finally turning a corner.

Moreover, regardless of whether a so-called “Phase-One” deal will be inked, there is a huge amount of pessimism over a “Phase-two” deal which will tackle the more elusive challenges, such as a  key US complaint that China effectively steals US intellectual property by forcing US companies to transfer their technology to Chinese rivals.

AUD has not even managed to remain bid on the news that China will be raising penalties for theft of Intellectual Property (IP) in a step that the broader markets have taken as a gesture toward the US. However, the Hong Kong bill is also a  thorn in the bull’s sides and there have been recent reports that China has summoned the US Ambassador over interference with Hong Kong.  

US dollar remains bid, yield advantage sends AUD/USD lower

Meanwhile, the US dollar remains bid and the greenback’s yield advantage over the Aussie increased as spreads widened. Traders might be more prone to risks associated with the latest downbeat Australian October employment and November PMIs which have raised the likelihood of an RBA rate cut.

Ears on the ground for RBA speakers

Looking ahead, traders are also being cautious ahead of two critical speeches from the central bank, especially one from Phillip Lowe, Governor of the Reserve Bank of Australia, on quantitative easing, QE at a European banking event.  Philip Lane will also speak in a separate event with a prepared text.  

Commodity complex could be AUD’s savour

Analysts at ANZ Bank noted that the signs of progress in the US-China trade talks helped boost sentiment in the commodity markets.

“The  ANZ CCI  ended the session up 0.5%. The energy sector was the biggest winner, with the oil price rallying on the news. Agriculture was also stronger, with wheat and rice rising strongly. Nickel prices steadied after heavy falls earlier this week, although losses elsewhere dragged the industrial metals sector lower. Precious metals were weaker,”

– analysts at ANZ Bank explained.

AUD trades as a proxy to the commodity complex and is usually positively correlated. Positive trade headlines could well keep the commodities on the bid and slow down any dovish RBA  related downside in the AUD.

AUD/USD levels

Bears are in control with the falling daily and monthly RSIs and will seek a test below the aforementioned technical support, (daily cloud, the 61.8% Fib of 0.6670-0.6929 as well as daily lows from Nov. 14 low and Oct. 17.), for a look-in at the 0.6710/20 area ahead of the YTD lows.