Can the Aussie gain back its pips and close the week higher than its peers? Here are catalysts that could influence its price action.
China’s data releases
Australia won’t be printing top-tier economic reports this week, but economic reports from China – Australia’s largest export market – can make the Aussie bulls and bears pay attention.
The data dump on Friday is the one to watch, as the world’s second-largest economy is scheduled to release its monthly fixed asset investment, industrial production, retail sales, and unemployment rate reports.
A quick look at the forex calendar tells us that analysts are generally expecting stronger numbers for the releases this month. Will China’s reports deliver? Or will higher expectations translate to deeper disappointment?
Overall risk sentiment
Aside from taking cues from gold prices, the high-yielding Aussie’s price action can also depend on market risk sentiment.
This week we have a couple of potential catalysts including the U.K. Parliament’s Brexit vote, monetary policy decisions from the SNB and ECB, and a couple of top-tier economic data from the U.S.
And then there’s the U.S.-China trade war, which could still escalate depending on how aggressive China wants to get back at the U.S. and Canada for arresting a tech titan from Huawei and if the U.S. and China’s reps have made enough negotiation progress to meet the 90-day truce deadline.
Last Week’s Price Review
The Aussie had a reversal of fortune since it finished in second place last week but is trailing behind in last place for the current week (as of 7:00 am GMT).
And the Aussie was brought low this week, thanks to poor Australian economic reports, RBA Deputy Guv’nah Debelle’s dovish comments, and the strong resurgence of risk aversion due mainly to growing doubts that the trade war truce between the U.S. and China will lead to a peace treaty, although recession fears because of the yield curve inversion of some U.S. bonds were also cited.
The Aussie took some directional cues from gold prices, but other factors quite obviously had a bigger impact on the Aussie’s price action since gold is closing out the week on a positive note, while the Aussie is currently trailing behind all its peers.
With that said, the Aussie actually had a promising start since all AUD pairs gapped higher thanks to good news over the weekend that the U.S. and China had agreed to a trade war truce.
Follow-through buying was only limited, however, and AUD pairs spent the rest of the day trying to close the weekend gaps, even as risk appetite prevailed and gold prices rose.
AUD bulls would renew their offensive during Tuesday Asian session and the RBA’s monetary policy statement appears to have enabled the Aussie to overpower its peers, likely because the RBA presented a rather optimistic assessment of and outlook on the Australian economy.
However, AUD bulls began to falter as risk aversion returned during Tuesday’s London session. AUD weakness then intensified when Tuesday’s U.S. session rolled around, after Trump sent out these tweets:
The negotiations with China have already started. Unless extended, they will end 90 days from the date of our wonderful and very warm dinner with President Xi in Argentina. Bob Lighthizer will be working closely with Steve Mnuchin, Larry Kudlow, Wilbur Ross and Peter Navarro…..
— Donald J. Trump (@realDonaldTrump) December 4, 2018
……on seeing whether or not a REAL deal with China is actually possible. If it is, we will get it done. China is supposed to start buying Agricultural product and more immediately. President Xi and I want this deal to happen, and it probably will. But if not remember,……
— Donald J. Trump (@realDonaldTrump) December 4, 2018
….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
— Donald J. Trump (@realDonaldTrump) December 4, 2018
The WSJ CEO Council was also being held at the time, and national security adviser John Bolton was stressing the need for legislation to ban imports of products and services rising from U.S. intellectual property theft, while economic adviser Larry Kudlow said he has “no assurances” for a deal and that a deal “may not get done” even.
More pain for the Aussie would come during Wednesday’s Asian session, thanks to the triple whammy from risk aversion, falling gold prices, and Australia’s disappointing GDP report.
And that’s not the end of the Aussie’s pain since more bears would come out to torment the Aussie when word got around that Huawei’s global CFO was arrested in Canada for extradition to the U.S., which naturally fueled growing doubts over a long-lasting solution to the ongoing trade war between the U.S. and China.
Australia’s disappointing trade report was then released shortly after the announcement of the arrest, which kicked the Aussie even lower.
The Aussie also got mauled by bears during Thursday’s London session and the apparent culprit was RBA Deputy Guv’nah Guy Debelle since he implied that the RBA may be getting worried and may be mulling about shifting to a more neutral stance when he said that (emphasis mine):
“The Reserve Bank has repeatedly said that our expectation is that the next move in monetary policy is more likely up than down, though it is some way off. But should that turn out not to be the case, there is still scope for further reductions in the policy rate. It is the level of interest rates that matters and they can still move lower.”
The Aussie would finally get a chance to lick its wounds during Thursday’s U.S. session, likely because of profit-taking and/or because the Aussie was taking advantage of the Greenback’s weakness at the time.
Risk sentiment also began to show signs of improving during Friday’s Asian session.