As you can see below, the Aussie was all about gold and yuan last week. Which catalysts should you watch out for this week?
Australia won’t be printing top-tier economic reports over the next couple of days, so we only have overall market-sentiment as our potential market-mover.
Remember that the U.S. and China’s tariffs are scheduled to take effect today. And while they’re both milder than what markets had priced in, they still represent an escalation of the trade war between the world’s largest economies.
News of future negotiations between U.S. and Chinese reps could boost risk sentiment and the Aussie. Meanwhile, speculations of even more tariff plans could weigh on the high-yielding comdoll over the next couple of days.
Keep your eyes glued to the tube for any relevant headlines that might affect risk sentiment!
Last Week’s Price Review
The Aussie is turning in another good performance this week since it’s currently winning out against everything but the Kiwi (as of 6:00 am GMT).
This week, it looks like the Aussie was tracking the yuan more closely. And for good reason since there were plenty of headlines about the ongoing trade war between the U.S. and China and they were somewhat positive (or at least not as bad as expected).
Risk sentiment also had an effect on the Aussie’s price action. And a clear example of this is the Aussie’s price action on Monday since both gold and the yuan were on the rise, but the majority of AUD pairs were tilting to the downside because of the risk-off vibes on Monday.
And as noted in Monday’s Asian session recap, the market was rather skittish because of news over the weekend that the U.S. may announce another round of anti-China tariffs on Monday.
And as it later turned out, the U.S. did announce a fresh round of tariffs on around $200 billion worth of Chinese goods, effective September 24.
The tariffs are currently set at 10%, but will be increased to 25% by the end of the year. However, the market was expecting that a 25% tariff will be imposed from the get-go, which probably triggered some relief buying, stoking demand for the yuan (and the Aussie).
Demand for the Aussie was then likely sustained by the RBA’s meeting minutes since they reiterated the RBA’s hiking bias while also revealing that the RBA is not too concerned that Australian banks have been hiking their rates on variable home loans, noting only that (emphasis mine):
“By the time of the September meeting, lenders accounting for around 40 per cent of outstanding housing credit (including one major bank) had announced increases in mortgage lending rates in response to the increase in funding costs. Once they take effect, these increases would imply a small rise in the average outstanding variable housing loan rate, unwinding about half of the decline observed in the average housing loan rate over the preceding year.”
Moving on, the Aussie (and the yuan) would get slapped lower during Tuesday’s London session, apparently as a reaction to China’s threats that it will retaliate against the U.S.
China would later deliver on those threats by slapping 5-10% in tariffs on $60 billion worth of U.S. goods. However, the market was expecting a tit-for-tat response, so instead of taking a dive, the Aussie (and the yuan) reacted positively to the announcement, likely due to relief buying.
The Aussie would wobble later on when Trump gave a speech since Trump threatened to impose even more tariffs against China. However, buyers eventually returned since Trump also had this to say (emphasis mine):
“So we’ll see what happens. But we’re making a lot of headway with China. China wants to come over and talk, and we are always open to talking.”
After that, all AUD pairs started trending higher, getting an additional boost when Chinese Premier Li Keqiang said that (emphasis mine):
“One-way devaluation will do more harm than good to China’s economy. China will by no means stimulate exports by devaluing the yuan.”
Both gold and the yuan actually began trading sideways on Wednesday after Li Keqiang’s speech. However, most AUD pairs continued to trend higher, likely because of the risk-friendly vibes.
The Aussie’s price action did become a bit mixed come Thursday. The Aussie then traded somewhat sideways on Friday. The yuan was tilting slightly to the upside on Friday, though, and risk-taking persisted, so most AUD pairs were also tilting slightly upward.