RBA’s meeting minutes and Australia’s jobs numbers are only some of the catalysts in store for the Aussie. Will these take the spotlight away from trade-related headlines?
China’s data dump
In a few hours China will print top-tier reports including its latest GDP, industrial production, fixed asset investment, and retail sales numbers.
Since China is Australia’s largest exports market, any significant hits or misses could cause a blip or two for the Aussie. Don’t miss this data dump!
RBA’s meeting minutes (July 17, 2:30 am GMT)
As expected, the Reserve Bank of Australia (RBA) kept its policies unchanged for another month in July.
What caught the market players’ attention was Governor Lowe and his team dropping this part of their previous statement:
“An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”
Instead, RBA now believes that:
“The Australian dollar has depreciated a little, but remains within the range that it has been in over the past two years.”
This week’s meeting minutes could tell us more about RBA’s growth forecasts and its concerns over “international trade policy in the United States.” Are RBA members expecting “low level of interest rates” for a while yet?
Australia’s jobs data (July 19, 2:30 am GMT)
Last month’s release was a mixed bag of beans, as it showed a lower unemployment rate but also a lower labor force participation rate.
A closer look also revealed that the 12,000 net gain – which missed the 19,000 increase expected – was mostly due to 32,600 part-time workers taking over the 20,600 full-time positions that were lost.
This week analysts are expecting a 16,600 net increase in jobs created. Meanwhile, participation rate (65.5%) and unemployment rate (5.4%) are expected to maintain May’s figures.
Last Week’s Price Review
After five consecutive weeks of being a net loser, the Aussie is finally on the winning side of the forex field. In fact, the Aussie is currently the second best-performing currency of the week (as of 6:00 am GMT), losing out only to the almighty Greenback.
The Aussie is closing the gap with the Greenback, though, so there’s a chance that the Aussie may end up as this week’s champion.
As you can see in the chart above, AUD pairs were taking directional cues from gold prices (as usual). But as you can also see, gold is actually down in the dumps this week. It’s therefore quite clear that other factors were in play.
So, what else helped to direct the Aussie’s price action? Well, the short of it is that trade-related news/rumors and risk sentiment (to a lesser extent) also dictated the Aussie’s price action.
As for specifics, the Aussie was hit by selling pressure during Tuesday’s late U.S. session, even though gold prices were steady at the time. And the Aussie tanked apparently because of rumors that the U.S. will escalate the trade war with China by publishing a list of $200 billion worth of Chinese goods that will be subjected to additional tariffs.
And as it turns out, those rumors were the real deal since the U.S. would later officially announce the rumored list, which caused the Aussie to slide some more. After all, the Aussie is seen as a proxy for China, given that Australia’s main export market is China.
Anyhow, most AUD pairs continued to slide after that, with the exception of AUD/JPY, but that’s another story.
The bleeding finally stopped and most AUD pairs (except AUD/USD) began to find support when the Wednesday’s U.S. session rolled around. And that was apparently due to a Wall Street Journal report that cited “Chinese officials familiar with the plans” as saying the following (emphasis mine):
“China doesn’t import enough from the U.S. to match Washington dollar for dollar as it has in previous rounds, so Beijing is reviewing plans to hit back in other ways.”
“Behind the scenes, however, officials described the mood as more cautious.”
That last bit heavily implies that China is very reluctant to escalate the trade war further, which likely helped to ease some trade-related anxiety, providing support to the Aussie in the process.
More good news later came when a Bloomberg report cited “a person familiar with the [Trump] administration’s thinking” as saying that the White House is ready to restart talks with China.
And once again, the rumor turned out to be true since U.S. Treasury Secretary Steven Mnuchin would say late on Thursday that:
“To the extent that China wants to make structural changes, I and the administration are available.”
“We are not advocating tariffs. We are advocating fair trade.”
Incidentally, the Aussie’s broad-based rise started after the Bloomberg report was released. And the Aussie’s rise was likely sustained by the recovery in gold prices, as well as risk appetite getting revived.