AUTHOR: Steve Oram
A good week of China news helped the AUD/USD rebound strongly on Friday, closing up 1.2% on the week.
Earlier last week reports told us that the US and China continued to talk “around the clock”, and that US treasury Secretary Stephen Mnuchin said talks were “very productive” and that they had “pretty much agreed on an enforcement mechanism” – which has been one of the key obstacles in the trade talks. Optimism around a trade deal is growing, and this is, in turn, spurring on risk-sensitive currencies like the NZD & AUD. Whilst there is no deadline for a deal being announced just yet, progress is being made and now more than ever it looks like a positive trade deal will be struck.
Friday saw further evidence that China growth has perhaps bottomed with credit growth higher in March and growing at the strongest pace since 2015. Exports also rebounded strongly to rise 14.2% in March – well above the expected 6.3% y/y! – putting greater significance on Wednesday’s Q1 GDP data out of China. Is it really on the road to recovery?
Yet again however the AUD/USD rally stalled ahead of the 200-day average – making a high of 0.7192 before closing 20 points lower. It has been over 12 months since the AUD/USD closed above the 200-day average – on the 15th March 2018 – so it remains formidable resistance for now.
Brexit concerns take a breather for now, it almost feels relieving to say that this can has been kicked down the road (again), this time for up to six months. None of the problems that come with Brexit have gone away, but it is now unlikely we will hear anything substantial for months. For now, Prime Minister May is meeting with opposition leaders to search for compromise.
Currency market volatility remains low this week and much attention turns to a focus on inflation, with key readings due from the UK, the EU, Canada, Japan, and New Zealand.
Locally of special interest will be RBA meeting minutes tomorrow, NZD CPI and Chinese GDP releases on Wednesday, then AUD Unemployment Rate /jobs data on Thursday
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