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AUD is up on strong gains in commodities

Published July 15, 2019

Author: Dennis Li

China released its trade balance data on Friday last week, showing both imports and exports declined in June and the overall trade surplus was US$50.98 billion, up from US$41.65billion from May.  The number of exports fell by 1.3% year-on-year after tariffs on US$200 billion of Chinese goods were raised from 10% to 25% by the US in May while imports continued to slump, falling 7.3% amid declining domestic demand. The weak trade data points to considerable pressure on the world’s second largest economy as it battles to contain the effects of the trade war with the US.

With a rate cut of 25 basis point fully priced in at the US Fed’s next meeting, the Dow Jones Industrial Average rose 0.85% hitting its record high close on Friday. While US 10-year Treasury yields declined with the USD overall down against other major currencies. The AUDUSD was up by 0.62% last week, mimicking strong gains in commodities, led by copper which rallied 7.8%.

The US Fed Chairman Powell speaks again tomorrow in Paris. Given expectation of a Fed rate cut at months end his speech will be closely monitored by Markets for any clues that he will cut 50bps rather than 25bps.

The other key risk event this week is Thursday’s June Employment numbers for Australia. Given the emphasis RBA Governor Lowe has made of employment growth as a means toward wages growth, and so inflation a weak result could well bring forward the Markets expectation of another RBA rate cut, undermining the AUD.