The U.S.-China trade war story kept the Aussie from sustaining its profits from a risk-friendly environment. Let’s see if this week’s catalysts finally push it to positive territory!
China’s PMI reports
Last week’s Qualcomm brouhaha has told us that Aussie bulls and bears care very much about any developments concerning the U.S.-China trade war and its impact on Australia’s biggest trading partner.
Over the next couple of days we’ll see manufacturing and services PMI from China. The official readings will come out tomorrow at 1:00 am GMT, while Caixin’s reports will be printed on Wednesday at 1:45 am GMT and Friday at 1:45 am GMT.
A quick look at the forex calendar tells us that analysts generally expect the data to come a tad lower than their June numbers, but keep close tabs in case we see upside surprises!
Trade balance (August 2, 1:30 am GMT)
Aussie bulls cheered a wider-than-expected trade surplus in May, as a 4.0% growth in exports outpaced a 3.0% uptick in imports.
This week market players see a surplus of 0.91B AUD for the month of June, a bit higher than May’s 0.81B AUD figure.
Take note that the Australian Bureau of Statistics won’t be printing the report with retail sales this time. And since there are no other potential catalysts scheduled during the trading session (except maybe for some spillover from the FOMC statement), it’s likely that the trade numbers will dictate the Aussie’s intraday price action.
Retail sales (August 3, 1:30 am GMT)
Much like the trade balance data, retail sales also surprised to the upside back in May.
This time around markets see a 0.3% growth in consumer spending in June, a bit lower than the 0.4% improvement back in May.
For news traders out there, remember that retail sales is scheduled on an NFP Friday, which tends to see limited volatility in the trading sessions leading up to the release.
Last Week’s Price Review
The Aussie is following up last week’s poor performance with another poor performance since the Aussie is currently the third worst-performing currency of the week (as of 6:00 am GMT).
And this week’s bout of Aussie weakness was very likely due to another slide in gold prices and lingering concerns over China’s growth prospects due to the ongoing trade war with the U.S., which were able to negate any support provided by the risk-on vibes this week.
The Aussie started the week by weakening right away. And aside from falling gold prices, the higher-yielding Aussie was also likely weighed down by the risk-off vibes on Monday and the Greenback’s strength.
Appetite for risk got revived, the Greenback took a step back, and gold prices turned higher during Tuesday’s London session, however, so the Aussie was able to lick its wounds..
Gold’s recovery later stalled during the U.S. session, but the Aussie just soldiered on, likely because of the risk-friendly vibes during Tuesday’s U.S. session, although it’s also possible that market players were covering their shorts ahead of Australia’s CPI report.
Speaking of Australia’s Q2 CPI report, that failed to meet the market’s expectations (0.4% vs. 0.5% expected, 0.4% previous) so the Aussie got slapped lower.
However, the Aussie’s losses were limited, likely because gold prices were rising and the Greenback weakened during the run-up to the trade meeting between U.S. President Trump and European Commission President Jean-Claude Juncker
And things only got better for the Aussie since the Greenback slumped hard across the board when Trump and Juncker expressed cautious optimism before their meeting started.
Moreover, risk-taking kicked into high gear as the meeting progressed since rumors began to spread that the meeting was positive.
As a side note, the market didn’t really react much when Trump and Juncker officially announced that they hammered out a deal to de-escalate their trade spat and start negotiations to lower trade barriers, likely because the event was already priced in due to all those rumors.
At any rate, it was downhill for the Aussie after that since gold prices slumped and the Greenback began to recover.
In addition, it’s likely that renewed concerns over China’s growth prospects may have weighed down on the Aussie since an unnamed White House official told Reuters that the deal between the E.U. and the U.S. also involves cracking down on China’s trade practices when the source said that:
“They want to work together with us on China and they want to help us reform the WTO.”
There was also that story about China thwarting U.S. chipmaker Qualcomm’s bid to acquire Dutch chipmaker NXP Semiconductors, which was interpreted as bad news for the ongoing trade war between the U.S. and China.
And it didn’t help that signs of risk aversion were present during Thursday’s U.S. session. Gold prices were tilting to the upside by Friday, though, and the Greenback’s rise ran out of steam, so the Aussie found some respite.