Author: Nicholas Cork
A night of treading water for AUDUSD in it’s new higher range, as the offshore market took stock of the weekend developments and subsequent Asian relief rally. AUD traded at 4 month highs just below 74 cents, and just shy of the important technical level of 0.7415 (200 day moving average – AUD has been below this moving average since April!).
As the weekend momentum wanes a touch it may be worth a closer look at the AUDUSD impact from the Trade War. The ‘war’ simmered away for the first half of 2018 before significant tariff announcements were made in mid-June when the AUD was trading just under 76 cents. Within a few weeks the AUD was at 73 cents, and within a few months it was nearly breaching 70 cents. Also impacting on the AUD were the ever increasing yields that US interest rates were attracting, and throw in the Italian budget woes as well and the AUD was on the ropes.
Fast forward 5 weeks to today and the AUD is over 3 cents higher at 0.7350 mainly on the better trade news, and also partly aided by Italy saying they will reduce their budget deficit. But the elephant in the room is still the US yield advantage over Australia, and although the market is assuming the US will take a break from hikes, their data is still quite strong and further US rate hikes seem to be ahead. Worth noting that this yield advantage to the USA in the 2 Year interest rate is closing in again on levels that we saw when the AUD was threatening 70 cents.
So although we have seen a strong recent rise in the AUDUSD, domestically I feel there are still many headwinds .. politically (as seen by the world at the G20 and most days in the press domestically), … the local equity market is a serious underperformer, …. and with the RBA in no rush to move the yield disadvantage will continue for quite some time.
Thus AUD may find 0.7415/20 a little tough to break above for now, and importers may consider some orders ahead of that level. RBA has it’s final meeting for 2018 today.
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