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Calm before the potential storm

Published July 19, 2018

Author: Dennis Li

Once again the Australian dollar held its ground at 0.7340 and rebounding to current levels closer to 0.7400 after a late afternoon sell off yesterday. Its resilience is impressive but the anecdotal evidence in the market would suggest that the bigger players are just waiting for the catalyst to drive it further down or a reason to push the AUD back towards 0.7500. That may come with the release of our employment data at 11:30 this morning.

The US dollar Index was pushed to a three-week high of 95.41 by US Fed Powell’s upbeat comments and the US stock market traded near a five-month high in the last 24 hrs with strong Q2 company results . Conversely, manufacturers from all 12 districts in the Federal Reserve have naturally registered heightened levels of concern over the impact of recently imposed tariffs.

The China’s yuan extended its drop to a 11-month low just below 6.72 against the greenback overnight. China’s foreign ministry warned the US-driven trade war has become the biggest ‘confidence killer’ for the global economy and the whole world would fight back. AUDCNY had little movement overnight

The EUR was well supported at its key level of 1.16 against the USD overnight after the release of annual inflation data showing a 2% increase in June was in line with expectations. Even though their inflation’s growth was mainly driven by volatile energy prices, it is still a welcome sign to the ECB as it is trying to wind down bond purchases. AUDEUR climbed just above 0.6350 overnight.

Oil rose back up to $69 per barrel with US government data that indicated bullish demand and investors have also begun to worry about the impact from the trade dispute between the US and its trading partners.