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  • Trump’s trade war is fueling a currency war between the US and China.
  • AUD, a proxy for China, is taking a hit after PBOC’s devaluation of CNY.

The People’s Bank of China’s (PBOC) decision to devalue Yuan by most since June 2016 is hurting the Aussie dollar, proxy for China.  

The currency pair has lost more than 50 pips in the last 25 minutes and is currently trading at the session low of 0.7325.

The PBOC raised the yuan reference rate by 605 pips to 6.7671 today – the biggest single-day jump in over two years. More importantly, the move comes a day after the US President Trump said he is not thrilled with the (Fed) rate hikes and fears that the higher cost of borrowing would nullify the work his administration has done.

The timing of the massive CNY devaluation indicates the world’s two biggest economies are likely moving towards a full-fledged currency war. Consequently, the AUD and Asian currencies have come under pressure.  

The Aussie dollar risks falling further should the equity markets turn risk averse in response to massive CNY devaluation.  

AUD/USD Technical Levels

Resistance: 0.7360 (July 12 low), 0.7401 (10-day MA), 0.7441 (July 19 high).

Support: 0.7310 (July 2 low), 0.7160 (Dec 2016 low), 0.7145 (May 2016 low).