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  • Much-awaited Trump-Xi meeting produced at least a temporary truce in the trade war.
  • Expect gaps to the upside in risk related FX.  
  • AUD/JPY, antipodeans, Yen and USD/CNH all likely to be movers.

The highly anticipated summit between Trump and Xi concluded  with the planned increase in US tariffs on hold for 90 days – (A statement released by the White House confirmed both men had enjoyed a “highly successful” discussion over sirloin steak).

The truce between the Washington and Beijing emerged  in Argentina where the  leaders agreed to pause the introduction of new tariffs and intensify their trade talks,  entering a  90 day  negotiation window to address US concerns about forced technology transfer and protection of intellectual property, after which tariffs will rise if there is no agreement.  China, which has so far slapped $US130bn in tariffs on US goods in retaliation, in turn also agreed to a new “structure” to deal with cyber intrusion and intellectual property theft following accusations by Mr Trump that China was stealing state secrets.

This has been  heralded in the media as a breakthrough.  However, Mr Trump warned that all bets would be off if the ­nations could not reach a lasting agreement that tipped the balance towards a more favourable position for US businesses. While it is positive, it comes as no great surprise and was probably what the market was half pricing in as the best that might have been expected at this early stage of reengagement. At least, for now, the handbrake on global growth has been taken off and that should be risk-positive for the closing weeks of 2018.    

AUD/JPY and AUD/USD worth a look at the open

Significantly,  Trump and Xi had listened to the concerns of the world’s major economies, including Australia, about the need to de-escalate tensions which  is  likely to play into the Aussie bull’s hands at the start of this week. AUD/JPY should pick up a decent bid on the cross flows from such positive sentiment.  The International Monetary Fund had warned that US-China tensions posed a “systemic” risk to Australia if they were allowed to develop into a full-blown trade war.