The Aussie took cues from trade war concerns and commodity price action last week. Will the comdoll get a chance to recover some of its losses this week?
More global trade war uncertainty?
Australia won’t be printing top-tier economic reports this week, so Aussie bulls and bears will likely take their cues from the Greenback’s price action as well as any ruckus in the Trump administration.
And then there’s news updates on the brewing global trade war. Word around the hood is that China has already drafted its own set of tariffs on U.S. products should the Donald push through with his plans.
Trump has hinted that he’s willing to negotiate with global economic giants, but until we see some concrete news, traders will likely stay worried about export-dependent economies like Australia. Keep an eye out for updates that could affect demand for Australia’s gold and iron ore exports!
Last Week’s Price Review
The Aussie is having another bad run this week (as of 6:00 am GMT), even though gold was in the demand and is closing the week on a high note.
Looking at the overlay of AUD pairs above, we can see that the Aussie’s overall price action was a bit messy. There was even some diverging price action, which means that the Aussie was occasionally taking orders from its peers.
If we use last week’s closing prices (dashed horizontal line) as reference, we can see that the Aussie was mixed on Monday and Tuesday, climbed higher on Wednesday, weakened across the board on Thursday and recovered slightly on Friday, although selling pressure was still noticeable.
The mixed performance on Monday and Tuesday was likely due to conflicting signals since it looks like the Aussie was also taking directional cues from iron ore, which is only natural since iron ore is Australia’s main commodity export.
As you saw in the earlier overlay, gold was up on Monday but as you can see in the overlay above, iron ore was down. The inverse holds true on Tuesday since gold was down while iron ore recovered.
Gold surged while iron ore was slightly higher on Wednesday, though, likely because of the weak Greenback ahead of and after the FOMC statement. As a result, the Aussie ended up being a net winner on Wednesday, losing out only to the pound and the Loonie.
Unfortunately for the Aussie, both iron ore and gold prices turned lower on Thursday. Iron ore, in particular, was hit really hard. And market analysts blamed the slide in iron ore prices on fears of a trade war between the U.S. and China amid Trump’s decision to slap tariffs on some Chinese imports, as well as a buildup in steel inventories in China and concerns of a possible slowdown in the Chinese construction sector.
As for the Aussie’s anemic performance on Friday, that was likely due to conflicting signals from iron ore and gold prices since iron ore plumbed new intraweek lows, with trade war fears still being blamed by market analysts. Gold, meanwhile, was buoyed by safe-haven demand because of all that risk aversion due to fears of a potential trade war.
Anyhow, other than commodities, the Aussie’s price action also had other drivers.
One such driver was Australia’s February jobs report, which revealed that only 17.5K jobs were generated in February, missing the consensus for a 19.8K increase.
Another apparent driver is Trump’s announcement of tariffs against China. We already touched upon this before when we discussed what caused iron ore prices to slide. But as you can see in the overlay of AUD pairs, the announcement also had a direct impact on the Aussie’s price action.
Oh, as a side note, the RBA released its latest meeting minutes. However, that was essentially a dud since the RBA merely reiterated its message that wage growth hasn’t picked up and all that. In other words, there wasn’t really anything new and the RBA is content to sit on its hands for now and let monetary policy stay the course.