The Aussie’s price action last week mostly centered around the U.S.-China trade war. See if there are other catalysts this week!
RBA’s policy decision (Aug 7, 4:30 am GMT)
In its previous statement the Reserve Bank of Australia (RBA) is still optimistic that growth will hit “a bit above” 3.0% and acknowledged the Aussie’s decline by scrapping a key statement from its previous draft.
However, the central bank is still jittery over its household consumption outlook as well as “the direction of international trade policy in the United States.”
Analysts don’t expect the RBA to make policy changes this week. But now that the Aussie has steadied a bit and household consumption is showing momentum, will the central bank throw in a hawkish statement or two?
China’s top-tier reports
For newbies out there, you should know that traders often use the Aussie as a substitute when they want to price in news from the world’s second largest economy.
This week we’ll see China’s trade data at on Wednesday’s Asian session trading. Keep close tabs on China’s imports (which hints at its demand for other countries’ exports) and its surplus with the U.S. (which could either fire up or cool down trade war worries).
Overall risk sentiment
The high-yielding Aussie tends to move to the beat of risk sentiment and this week won’t be an exception.
Now that China has shared its plans to impose tariffs on $60B worth of U.S. goods, all eyes will be on the Trump administration to see if it will retaliate by actually implementing its latest tariff threats or if it will cook up some more.
Last Week’s Price Review
The Aussie is turning in a mixed performance this week (as of 6:00 am GMT). The Aussie is currently a net winner, though, so the Aussie’s two-week losing streak may soon come to an end.
The Aussie had a steady start but caught a bid on Tuesday when the Australian Bureau of Statistics released a report showing a 6.4% surge in new building approvals during the June period, beating expectations for a 1.1% rise.
The Aussie’s rise on most pairs was then sustained for the rest of the day, thanks to the risk-friendly environment during Tuesday’s morning London session and higher gold prices during Tuesday’s U.S. session.
Unfortunately for the Aussie, gold prices began to trade lower during the Tuesday’s late U.S. session. And to make matters worse, the Wall Street Journal released a report claiming that there had been little progress in trade talks between the U.S. and China.
Moreover, the report claimed that “Some [of Trump’s advisers] are pushing the president to apply tariffs as high as 25% on $200 billion of Chinese imports, up from an original proposal for 10%.”
More sellers later attacked the Aussie when a Bloomberg report claimed that “The Trump administration will propose raising to 25 percent its planned tariffs on $200 billion in Chinese imports, ratcheting up pressure on Beijing to return to the negotiating table.”
U.S. Trade Representative Robert Lighthizer would later confirm those rumors on Wednesday. But as you can see in the chart above, the event was apparently priced in already since the official announcement had little impact on the Aussie price action. In fact, the Aussie even got a weak boost, likely because of short-covering.
However, the announcement did trigger an intense bout of risk aversion during Thursday’s Asian session and London session, which very likely put the hurt on the higher-yielding Aussie. Also, gold prices were sliding at the time.
The Aussie’s price action became more mixed when Thursday’s U.S. session rolled around, though. And apparently, that was due to U.S. Commerce Secretary Wilbur Ross’ comment that Trump’s tariffs won’t be “cataclysmic”. Ross was actually referring to the U.S. economy, but some market analysts also applied it the Chinese economy, which is probably why the Aussie got some respite on most pairs.
Incidentally, the split in the Aussie’s price action caused by Ross’ comment is the reason why the Aussie is currently on track to closing out the week as a net winner since Ross’ comment allowed the Aussie to score wins against the euro, the yen, the pound, and the Kiwi.