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Chinese traders are back in the game this week! Will this mean more losses for the Aussie? Or will we finally see some bullish action?

Let’s take a look at the comdoll’s potential catalysts this week:

China’s trade data (Oct. 12, Asian session)

In last month’s release we found out that China’s trade surplus with the U.S. hit record highs even as exports growth in general slowed slightly in August.

Since then the U.S. has slapped (lower-than-expected) tariffs on an additional $200B worth of Chinese goods. In return, China has imposed tariffs on $60B worth of U.S. goods.

This week we’ll see China’s trade numbers for the month of September. Remember that the U.S. and Chinese tariffs first took effect on July 6.

If today’s numbers print way weaker than the $21B surplus (vs. $27.9B in August) that markets are expecting, then we might see more intervention from the government.

But if China’s trade activity remains resilient, then we could see a bit of risk-taking in the markets.

Overall risk sentiment

Much like the Kiwi, the high-yielding Aussie became a bit less attractive this month after the Fed raised its interest rates and U.S. bond yields climbed almost consistently after.

Will traders feel the same way this week? Or will we see some profit-taking ahead of Uncle Sam’s top-tier reports?

Oh, and don’t forget to keep close tabs on other major economic themes that might also move the major currencies! High-yielding currencies like the Aussie are sensitive to risk-taking and risk aversion, so make sure you’re around in case we see major shifts in market biases!

Last Week’s Price Review

The Aussie had another rough time this week and is currently trailing behind in second-to-last place (as of 6:00 am GMT).

Overlay of AUD Pairs & Gold (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Gold (Black Line): 1-Hour Forex Chart

The Aussie took some directional cues from gold prices this week, while largely ignoring the yuan, probably because the yuan was just trading sideways for most of the week.

Overlay of AUD Pairs & CNH/USD(Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & CNH/USD(Black Line): 1-Hour Forex Chart

Having noted that, the Aussie started the week on a slightly strong footing (despite the initial fall in gold prices), likely because of the risk-friendly vibes at the start of the week, thanks to news that NAFTA has been successfully renegotiated (and renamed to USMCA).

However, bears starting mauling the Aussie on Tuesday. And I noted in Tuesday’s London session recap that the Aussie was likely reeling in pain because of the risk-off vibes at the time.

However, I also noted that the Aussie became especially weak after the RBA statement. But as noted in Tuesday’s Asian session recap, the RBA didn’t really say anything particularly new.

The only change that can be considered somewhat bearish is that the RBA changed its language on its inflation forecasts from (emphasis mine):

“In the interim, once-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower, at 1¾ per cent.”

To (emphasis mine):

“In the interim, once-off declines in some administered prices in the September quarter are expected to result in inflation in 2018 being a little lower than otherwise.”

That implies that the RBA may have downgraded its inflation forecasts even further since the RBA continued to complain about low wage growth. And that, in turn, may have contributed to the Aussie’s vulnerability since the Aussie lost out to everything after the RBA statement.

In any case, the Aussie would get a chance to lick its wounds when the Greenback dipped a bit and gold prices jumped, but more pain would come the Aussie’s way on Wednesday since risk aversion persisted.

Interestingly (and oddly) enough, risk sentiment flipped back to risk-on during Wednesday’s European session but the Aussie’s slide only accelerated (except against the Kiwi).

There were no apparent catalysts, but as noted in Wednesday’s London session recap, the Aussie may have been weakened because gold prices were falling, the U.S. dollar was climbing, and rising U.S. bond yields may have negated the Aussie’s yield advantage, while also putting interest rate differentials and monetary policy divergence into play since higher U.S. yields usually signal higher inflation expectations (and more Fed rate hikes).

Incidentally, that bit about the Aussie losing its yield advantage later became the dominant narrative for explaining the Aussie’s weakness this week.

Moving on, the Greenback’s strength began to falter on Thursday since the rise in the U.S. bond yields also stalled, but the Aussie continued to slide lower on most pairs, likely because of the persistent risk-off vibes.

And since risk aversion is still the name of the game during Friday’s Asian session, the Aussie continued to take some hits on Friday.