Poor domestic data and a weak Chinese yuan dragged the Aussie near the bottom of the heap last week. Will the Aussie have a chance at redemption this week?
Since Australia isn’t scheduled to print any major economic reports this week, we’ll have to take cues from overall risk sentiment.
Specifically, keep your eyes on any updates regarding the U.S.-China trade war. Remember that the U.S. is set to meet with Chinese delegates over the next couple of days, which is just before Uncle Sam is scheduled to implement additional tariffs on more Chinese products on August 23.
Will the parties come to a solution before more tariffs kick in? More importantly, how will market players price in the uncertainty and the outcome of the meetings?
Last Week’s Price Review
The Aussie is turning in another poor performance this week since it’s currently in second-to-last place (as of 6:00 am GMT).
Looking at the overlay of AUD pairs and gold, it looks like the Aussie didn’t track gold prices too closely this week.
And the likely reason for that is that the Aussie was likely taking more directional cues from the Chinese yuan. After all, the current narrative is that the Aussie is being used as a proxy for China, given that Australia’s main export market is China.
Anyhow, here’s an overlay of AUD pairs and offshore Chinese yuan (CNH).
As you can see, the correlation is much tighter. With that said, there were instances when the the Aussie diverged from the yuan, so other factors were also apparently in play.
Anyhow, the Aussie had a rough start and some AUD pairs even gapped lower. And as noted in Monday’s Asian session recap, that was apparently because of falling gold prices, as well as the risk-off vibes due to the Turkish Lira’s fall, thanks to combative statements from Turkish President Erdogan over the weekend.
The Turkish lira’s slide on Monday was only limited, though. And the Chinese yuan was trading sideways at the time, so selling pressure on the Aussie didn’t intensify even as gold prices continued to fall and risk aversion lingered.
The yuan did start encountering sellers during Monday’s U.S. session, however. And the Aussie also quite noticeably got a bearish kick.
The yuan and gold prices then traded roughly sideways on Tuesday. And the Aussie apparently fell victim to opposing currency price action since the Aussie’s price action was more mixed comed Tuesday.
To be more specific, the Aussie continued to lose ground against the Greenback, the Swissy, the Loonie, and the Kiwi, but traded roughly sideways against everything else.
The Aussie’s price action became uniform again come Wednesday, though, apparently because the yuan and gold prices were both in decline. Although Australia’s poor data may also have had an impact on the Aussie’s price action.
In any case, the Aussie’s price action later decoupled from the yuan for no apparent reason during the London and U.S. sessions since the Aussie’s price action became more mixed even as the yuan continued to fall.
The Aussie’s price action became uniform again when the AUD pairs got slapped broadly lower after Australia’s jobs report failed to impress by printing a loss of 3.9K jobs instead of a 15.0K increase.
However, Aussie bulls were saved from the slaughterhouse when the Chinese yuan rallied hard after Vice Minister of Commerce Wang Shouwen announced that China will meet with U.S. representatives led by Under Secretary of Treasury for International Affairs David Malpass in Washington later this month.
The Aussie then tracked the yuan higher after that but showed signs of taking directional cues from gold prices again by the time Thursday’s U.S. session rolled around since the yuan continued to trend higher for a bit but most AUD pairs were already trading sideways.