The combo of falling iron ore prices and global trade war concerns weighed on the Aussie early last week. Will this week’s set of economic reports provide any lift this week?
Australia’s CPI report (Jan. 31)
Wednesday’s Asian session trading promises to be an eventful one for the Aussie, as Australia is set to print its inflation numbers at 12:30 am GMT.
Analysts are expecting consumer prices to have risen by 0.7% in Q4 2017, which is faster than Q3’s 0.6% uptick. Meanwhile, the trimmed mean CPI (read: core CPI) is estimated to have grown by 0.5% against Q3’s 0.4% increase.
The last three releases have set the tone for the Aussie’s intraweek trend, so make sure you stick around when the report is printed!
China’s manufacturing reports
Not an hour after Australia’s CPI release China is scheduled to print its official manufacturing and services PMIs, followed by a private reading (Caixin’s) the next day.
The manufacturing PMI is expected to inch lower from 51.6 to 51.5 in January, while Caixin’s reading is expected to maintain its 51.5 figure.
Last Week’s Price Review
The Aussie is closing out the trading week on a weaker note (as of 7 am GMT), even though gold had a good run this week.
And if we remove AUD/USD from the overlay of AUD pairs, we can clearly see that the Aussie had a mixed start but encountered selling pressure across the board starting on Tuesday.
And that does sound about right since price action on the Aussie did seem to appear to track the fall in iron ore prices on Tuesday.
And the Aussie’s mixed start on Monday can be explained away as confusion due to conflicting signals from the rise in gold price and the plunge in iron ore prices.
Moreover, the Aussie tooks hits on Thursday when iron ore also took a dive, so it is very likely that the Aussie really was taking directional hints from iron ore prices, rather than gold prices.
However, I am of the opinion that something else drove the Aussie lower starting on Tuesday. And I think growing trade tensions and fears of potential trade wars also took a toll on the Aussie, especially after Trump announced the imposition of painful tariffs on solar panels and washing machines, which prompted China to respond with a warning that the U.S. is making the global trade environment worse for everyone.
Fears of potential trade wars also helps to explain why the Aussie continued to feel some broad-based bearish pressure on Wednesday, even though both gold and iron ore prices were climbing at the time. In fact, some market analysts say that risk-taking moderated a bit this week partly because of these trade-related fears.