The Australian dollar is higher because the Chinese yuan is

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  • Trade talks between the United States and China have resumed so the Australian dollar is predictably trading higher.
  • The Chinese yuan rallied to a two-week high following a request from the US government to Chinese policymakers to keep the yuan stable as part of trade negotiations.
  • The surge in the yuan helped propel the AUD/USD to a two-week high.
  • Australian Q4 wage data is the headline data act for traders today. The minutes from the Fed’s February monetary policy meeting will also be released.

Trade talks between the United States and China have resumed so the Australian dollar is predictably trading higher.

Hope springs eternal, it seems, despite most now expecting a longer-lasting trade truce.

Here’s the scoreboard at 8am in Sydney on Wednesday.

AUD/USD 0.7167 , 0.0037 , 0.52%
AUD/JPY 79.26 , 0.40 , 0.51%
AUD/CNH 4.8338 , 0.0054 , 0.11%
AUD/EUR 0.6316 , 0.0014 , 0.22%
AUD/GBP 0.5484 , -0.0032 , -0.58%
AUD/NZD 1.0414 , 0.0005 , 0.05%
AUD/CAD 0.9468 , 0.0029 , 0.31%

After beginning the session at .7130, the AUD/USD initially fell in Asian trade following the release of the minutes from the Reserve Bank of Australia’s (RBA) February monetary policy meeting.

While the bank offered nothing really new from what’s been heard in prior statements, the bank appears to be more acutely aware of mounting downside risks for the boarder economy from Australia’s housing market downturn.

The AUD/USD eventually bottomed out in European trade at .7104 before gradually reversing earlier losses as US markets reopened following the Presidents Day holiday on Monday.

That move was extended midway through the North American session as a sharp rally in the offshore traded yuan, or CNH, sparked buying across China-linked assets.

The catalyst behind the move was a report that the US government had made a request to Chinese officials to keep the yuan steady as part of trade negotiations.

“The USD weakened, led by USD/CNH, after news the US government asked the Chinese government to keep the yuan stable,” said Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.

“[The] USD/CNH fell significantly from around 6.7850 to around 6.7450.

“We are not surprised the US government has made such a request, but the request flies in the face of another US demand for a more market driven CNH.”

The USD/CNH fell to the lowest level in two weeks. In response, the AUD/USD rose also rose to a a two-week high of .7173, a level it continues to hover just below in early Asian trade on Wednesday.

Thomson ReutersAUD/USD (White, LHS) v USD/CNH (Orange, RHS, Inverted) 5-Minute Chart

The Aussie also trade flat to higher against most of the major crosses, the one exception being the British pound which rallied in response to positive headlines relating to Brexit negotiations.

“[According to news reports], UK and European officials are working on new legal text for the contentious Irish border backstop,” Capurso said.

“One official said a meeting between Theresa May and European Commission President Jean Claude Juncker on Wednesday will be ‘significant’. According to this official, an agreed draft could be ready by Thursday. Juncker says he is not expecting major developments.”

Despite the mixed messaging, it was still enough to propel the pound to the top of the G10 FX leader board for the session.

While movements in the Chinese yuan will likely maintain a vice-like grip on the Aussie dollar on Wednesday, especially in the first half of the session, there is one domestic data release scheduled that could see the Aussie dollar briefly disconnect from the yuan today: Australia’s Q4 Wage Price Index.

Markets are looking for a quarterly increase in hourly pay rates of 0.6%, leaving the year-ended rate unchanged at 2.3%.

With markets still fully priced for a 25 basis point rate cut from the RBA by the middle of next year, this release could add to the case for additional easing. Alternatively, a hotter-than-expected print could see rate cut expectations partially unwind.

It will arrive at 11.30am AEDT. This 10-second guide has more on what to expect.

Aside from that release, markets will also receive the latest Westpac-MI Australian leading index, Japanese trade data and New Zealand producer price inflation in Asia.

Later in the session, German producer price inflation, Eurozone consumer confidence and UK industrial orders are the headline data acts.

On the central bank front, the minutes of the Federal Reserve’s February monetary policy meeting will be released at 6am AEDT.

Bullard and Kaplan from the Fed, along with Peter Praet of the ECB, are also scheduled to speak.

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