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Crucial turning point of global trade war?

Published July 26, 2018

Author: Dennis Li

The volatility within the tight range on the AUD/USD we have spoken of continued last night with a decent rally on the AUD after yesterday’s CPI disappointment. A weaker than expected Q2 inflation number initially saw the AUD flirt with 0.7450 but this was quickly erased sending the AUD back below 0.7400 in afternoon trade. A  0.87% rally followed last night’s trade agreement between the US and Europe pushing the Aussie dollar briefly through the 0.7450 level. A reinstatement of a risk-on sentiment (again) aided the bounce.

The greenback was down against most of its major peers after President Trump and EU chief executive Juncker agreed to lower industrial tariffs, align regulatory standards on medical products and import more US soybeans. The Euro bounced back up to the 1.17 level overnight against the USD. And the AUDEUR improved slightly towards .6360.

The CAD also strengthened to a nearly six-week high of 1.30 against the greenback with the optimism from policymakers about prospects for the North American Free Trade Agreement. The AUDCAD is back up to 0.97 mark after a volatile day yesterday.

Oil rallied for the second consecutive day after US data showed domestic crude inventories fell to their lowest level since February 2015. The DOW enjoyed last night’s trade agreement and improved sharply after moving sideways most of the session. The All Ordinaries locally is expected to rally nicely after yesterday’s weaker finish.

Normally the US Goods trade balance figures would not be much of a reference point to watch but will be tonight as a guide to the ongoing trade war and its implications. Also, US Core durable goods and weekly unemployment claims tonight will be scrutinised as we approach tomorrow night’s release of US GDP.

The European Central Bank meets tonight to discuss their monetary policy settings but is not expected to shock the markets like last month when they announced their quantitative tightening and longer term interest rate plans. Last night’s trade agreement with the US should generate some interesting comments.