FROM WAR TO THAW: The Australian dollar recovers as trade tensions subside

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  • The Australian dollar rallied hard against the US dollar and Japanese yen.
  • But the Aussie lagged the move in most other major currencies as China/US tensions subside.
  • The data calendar is quiet, likely ensuring that sentiment and technicals dictate direction.

The Australian dollar rallied hard against the US dollar and Japanese yen on Monday, finding support from news that Chinese and US policymakers are attempting to resolve their differences over recent trade tensions.

However, as seen in the scoreboard below as at 7.55am AEDT, while the Aussie rallied against the greenback and yen, it lagged the move seen in other major currencies during the session.

AUD/USD 0.7747 , 0.0051 , 0.66%
AUD/JPY 81.65 , 1.01 , 1.25%
AUD/CNH 4.8444 , -0.0131 , -0.27%
AUD/EUR 0.6222 , -0.0011 , -0.18%
AUD/GBP 0.5443 , -0.0002 , -0.04%
AUD/NZD 1.0611 , -0.002 , -0.19%
AUD/CAD 0.9955 , 0.0032 , 0.32%

After opening the new trading week at .7696, the AUD/USD slowly ground higher throughout Asian, European and North American trade, helped initially by remarks from US Treasury secretary Steve Mnuchin that he was “cautiously hopeful” the US could reach an agreement with China to avoid a damaging trade war between the two nations.

“[The] positive mood was aided by a Steve Mnuchin FOX TV interview on Sunday in which he expressed optimism the US can reach an agreement with China that will forestall the need to impose trade tariffs,” said Rodrigo Catril, senior FX strategist at the National Australia Bank.

“Overnight comments from White House trade advisor Peter Navarro also helped as he confirmed the US and China are ‘are already at the negotiating table’ while Chinese Premier Li Keqiang made conciliatory comments around opening up the Chinese market.”

Catril said the remarks helped to boost US stocks and bond yields, although he notes the improved sentiment didn’t extend through to the US dollar which continued to slide against all of the majors except the Japanese yen.

And that included against the Aussie dollar.

“The AUD has also benefited from the improvement in risk sentiment and after briefly trading sub-77 cents Monday morning,” he said.

AUD/USD Hourly Chart

From a broader perspective, Greg McKenna, chief market strategist at AxiTrader, said the greenback just can’t take a trick at present no matter what the prevailing mood among investors.

“Pavlov’s US Bears continue to salivate at all news,” he mused in his morning note.

“Stocks are down, sell the dollar. The US is at the heart of the trade war, sell the dollar. Stocks are up, sell the dollar. China and the US are actually talking, sell the dollar. Europe’s data pulse has faded, sell the dollar.”

That prevailing mindset was certainly evident in the dollar’s moves against the major crosses on Monday, especially against the European currencies.

Turning to the session ahead, it’s another quiet one when it comes to economic data and events with no major releases scheduled in Asia.

Later in the session, markets will receive monetary growth and consumer confidence figures from the Eurozone while the Richmond Fed manufacturing index, CaseShiller house price index and Conference Board’s Consumer Confidence index for March will be released in the US.

Weekly US crude oil inventory data from the API will also arrive in the latter parts of the session.

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