- AUD has been the weakest currency in recent trade.
- Markets are getting set for the GDP data on Friday.
AUD has been the weakest currency in recent trade but is now consolidating vs the greenback below the 200-hr SMA at 0.7399 as the dollar picks up a bid and commodities fall away, (copper’s recovery capped), and the yuan drops back.
Despite some disappointing data releases n the US session, the dollar has picked up a bid between the range of 94.0840-94.7270 due to the back and forth on global trade. Bloomberg reported earlier that China will retaliate to the Trump’s administration with a plan to respond to any such measures, whether they are $16B or $200B.
However, markets are getting set for the GDP data on Friday, and ahead of the event, we had the Atlanta Fed GDPNow coming in at 3.8%, down from 4.5% for 2Q growth. The consensus for tomorrow’s data is for 4.2% growth – there had been some chatter that Trump reportedly told an associate it will be slightly higher. However, the central bank theme continues to underpin the dollar and the longer-term bear trend is likely to resume solely on the back of the RBA & Fed rate paths in divergence.
AUD and the terms of trade
Meanwhile, there was an unexpected broad-based leap in hard and soft commodity export prices which analysts at TD Securities explained was encouraging for trade and economic growth. “Even if the terms of trade fell -1%/q, the annual pace jumps to 2.5%/y given favourable base effects. For the AUD, the terms of trade is a medium-term driver of the exchange rate, and closely followed by the RBA. Our commodity price & 2y rates differential fair value model is $US0.752, with commodity prices currently providing the upside.”
AUD/USD is consolidating below the 50-D SMA and supported just below the 21-D SMA. RSIs are neutral. On a break of the 50-D SMA, eyes will turn to the 200-DMA and June highs which is a possibility so long as the barrier support remains intact down at 0.73 the figure. However, there is still the risk of a complete unwind of the two-year year-long reflation trade and the 0.72 handle would then be at risk. Below there comes the 0.7110/70 support zone.