Aussie traders shrugged off top-tier data last week in favor of pricing in global trade war updates. Will we see the same themes this week?
Unlike last week, Australia only has a handful of reports on the docket. What’s more, they’re mostly surveys rather than actual economic data.
The AIG construction index started the week with an upgrade from its February reading. It will be followed by the NAB business confidence tomorrow at 1:30 am GMT; Westpac consumer sentiment on Wednesday at 12:30 am GMT, and a speech by RBA Governor Lowe in Perth on the same day at 5:05 am GMT. Keep your eyes peeled for any remarks over the brewing trade war between China and the U.S.!
The fun will continue with the MI inflation expectations on Thursday at 1:00 am GMT and the home loans data that will follow thirty minutes later.
Last but not the least is the RBA’s financial stability review on Friday at 1:30 am GMT where the central bank will publish its bi-annual assessment of the current condition of the financial system and enumerate the potential risks to financial stability.
Overall risk sentiment
Since there aren’t not major market-movers scheduled this week, it’s likely that the Aussie will once again take cues from risk sentiment (read: trade war updates).
We know from Lowe’s speeches last month that he considers Trump’s tariff plans “highly regrettable and bad policy,” and that he calls for parties to “sit still and do nothing.”
This week we should watch how China and the U.S. respond to each other’s’ growing list of tariff plans. Word around the hood is that some market players aren’t really pricing them in until one of the parties actually implements a proposal. Make sure you stick around in case it happens this week!
Last Week’s Price Review
The Aussie is currently on track on closing out the week on another mixed note (as of 6:00 am GMT). And looking at the overlay of AUD pairs and gold prices below, we can see that the Aussie didn’t really track gold prices this week.
And while the Aussie’s price action looks kinda messy, the Aussie’s price action was actually somewhat uniform. It just so happens that the Loonie and the Kiwi were also in play.
We can get a clearer view of the Aussie’s price action by simply removing AUD/CAD and AUD/NZD from the overlay.
Anyhow, if gold didn’t drive the Aussie’s price action, then what did? Well, the Aussie was apparently taking directional cues from risk sentiment. And risk sentiment, in turn, was driven almost exclusively by updates related to the trade spat between the U.S. and China.
As for specifics, the Aussie started the trading week on a weak footing despite the lack of direct negative catalysts (and rising gold prices to boot). However, risk aversion was the dominant sentiment on Monday, thanks to news over the weekend that China imposed tariffs on U.S. goods as retaliation against Trump’s tariffs on imported aluminum and steel.
The Aussie then began to find support and climb higher on Tuesday as risk aversion began to fade and risk-taking showed signs of returning.
The RBA also gave its latest monetary policy statement on Tuesday. RBA Guv’nah Lowe merely repeated the RBA’s generally optimistic outlook on the Australian economy while also reiterating the RBA’s warning that “An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”
Overall, however, the RBA didn’t really have anything new to say, which is likely why the Aussie’s reaction was muted.
However, it’s worth noting that the Aussie began to weaken against its fellow comdolls while trading sideways against the Greenback and the pound while continuing to trade higher against the rest of its peers.
And this implies that the Aussie became vulnerable to opposing currency price action after the RBA statement.
At any rate, the Aussie saw uniform price action again come Wednesday when the Aussie broadly jumped after Australia’s retail sales report exceeded expectations (0.6% vs. 0.3% expected, 0.2% previous).
However, risk aversion was the dominant sentiment at the time, thanks to reports that China upped the ante by quickly announcing that they’ll reciprocate Trump’s plans to slap tariffs on 1,300 Chinese goods by slapping tariffs on 106 U.S. goods to tune of $50 billion. And that eventually wore the Aussie down.
Fortunately for Aussie bulls, risk sentiment began to improve as fears of a full-scale trade war began to ebb after Trump tweeted that “We are not in a trade war with China” and the Chinese ambassador to the U.S. said that “Negotiation would still be our preference but it takes two to tango.”
As to why the Aussie weakened, there’s no clear reason for that. Gold was sliding, though, and it’s possible that the Aussie was taking directional cues again since trade war jitters were easing at the time. Of course, another possibility is profit-taking, given that the Aussie did have a good run at that point.
Whatever caused the Aussie to slide, it soon became apparent that the risk-on vibes continued to fuel demand for the Aussie since the Aussie began tilting to the upside again.
However, the Aussie’s rally stalled when risk aversion began to reappear after Trump raised the stakes and reignited trade war fears by ordering an additional $100 billion worth of tariffs against China. And that’s where we stand at the moment.