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US-CHINA tension resumes

Published December 7, 2018

Author: Nicholas Cork

After easing lower yesterday below 0.7250 following a weak trade balance release, extreme volatility in equity markets then set the tone for the AUDUSD overnight, as it tried in vain to track an erratic DOW.  News that Canada had arrested the CFO of Huawei and were possibly extraditing to the USA spooked the market in the US session, (although the story was 12 hours old), with the DOW down 800 points within a few hours. This saw the AUD drift back down to 72 cents before a 700 point plus recovery in the DOW helped the AUD back up towards 0.7230 again where it sits this morning. Very evident was a quick flight to traditional safe haven currencies the CHF and the YEN when the DOW collapsed, so the market sentiment does seem to be on a knife-edge currently. Note that AUDcrosses are down across the board this morning.

Overnight the RBA Deputy Governor said in a speech that “the Reserve Bank has repeatedly said that our expectation is that the next move in monetary policy is more likely up than down, though it is some way off, but should that turn out not to be the case, there is still scope for further reductions in the policy rate.” Interesting timing following our weak GDP release this week, and the market has now further reduced their bets on any hikes in 2019.

No local data today – China has a slew of economic releases over the next few days to be watched. Have a nice weekend.