The Australian dollar succumbs to profit-taking as geopolitical risks resurface

Toru Yamanaka / AFP / Getty Images
  • The Australian dollar had a quiet session on Tuesday, lifting in Europe before giving back ground in New York trade.
  • Renewed geopolitical uncertainty towards US negotiations with North Korea and China explain the Aussie’s reversal.
  • Australia will release Q1 construction data today. RBA Governor Philip Lowe will also speak later in the session.

The Australian dollar, like broader currency markets, had a quiet session on Tuesday, lifting in European trade before giving back ground later in the day.

Here’s the scoreboard as at 7am in Sydney.

AUD/USD 0.7575 , -0.0006 , -0.08%
AUD/JPY 83.99 , -0.19 , -0.23%
AUD/CNH 4.8120 , -0.0067 , -0.14%
AUD/EUR 0.6430 , 0.0002 , 0.03%
AUD/GBP 0.5639 , -0.0005 , -0.09%
AUD/NZD 1.0918 , 0.0009 , 0.08%
AUD/CAD 0.9711 , 0.0018 , 0.19%

After rising above the 76 cent level in early European trade, leaving it at one-month high, the AUD/USD slipped lower in New York, weighed down by renewed geopolitical caution towards US negotiations with North Korea and China.

“President Trump has cast doubt on whether the June 12 summit [with North Korean leader Kim Jong-un] will take place,” said David de Garis, Economist at the National Australia Bank.

Trump said “there’s a chance, a very substantial chance it won’t work out”, following a meeting in his office with South Korean President Moon Jae-in.

“I don’t want to waste a lot of time and I’m sure he doesn’t want to waste a lot of time,” Trump said.

“So there’s a very substantial chance it won’t work out and that’s OK. That doesn’t mean it won’t work out over a period of time.”

Trump also hosed down optimism over trade negotiations between the US and China, suggesting that “there is no deal,” casting doubt that both sides were on the cusp of an agreement to reduce the size of the US trade deficit with China.

The renewed geopolitical uncertainty weighed on risk assets, including the Aussie dollar, seeing the AUD/USD slip back below the 76 cent level in late trade.

Investing.comAUD/USD 5-Minute Chart

Broader market sentiment was also impacted by ongoing uncertainty in Italy with President Mattarella expected to make a decision on the Giuseppe Conte’s proposed elevation to Italian Prime Minister later today.

Before that potential decision arrives, there’s a smattering of economic data scheduled both in Australia, Asia and abroad.

Locally, Australia will release Q1 construction work done at 11.30am AEST, providing a snapshot of residential, non-residential and engineering construction activity in the three months to March.

While not traditionally a market-mover, parts of the report will feed into next month’s Australian Q1 GDP release.

On the monetary policy front, RBA Governor Philip Lowe will also deliver a speech on “Australia’s Deepening Economic Relationship with China: Opportunities and Risks” at the Australia-China Relations Institute in Sydney from 6.05pm AEST.

Recent commentary from the RBA has been much the same. That is, while unemployment is high and wage and inflationary pressures low, a gradual improvement on all three fronts is expected in the years ahead.

Obviously, deteriorating relations between Australia and its largest trade partner would created downside risks to this assessment.

Regionally, the flash Nikkei-IHS Markit Japan manufacturing PMI report for May will also be watched closely given a recent moderation in global PMI readings.

Later in the session, a swathe of flash manufacturing and services PMI reports will be released in Europe and the US.

UK consumer price inflation, Eurozone consumer confidence and US new home sales are the other headline acts.

On the policy front, the US Fed will release the minutes of its May FOMC meeting.

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