The Australian dollar rebounds as the greenback rally fizzles

Cameron Spencer/Getty Images
  • The Australian dollar rebounded on Tuesday on renewed optimism over US-Sino trade negotiations.
  • The AUD/USD has previously fallen to six-week lows on Monday.
  • The US dollar index looks set to snap its nine session winning streak.
  • Wednesday will be a busy day for traders with a raft of important economic data and central bank events ahead.

The Australian dollar rebounded from six-week lows on Tuesday as the rally in the greenback fizzled.

Optimism towards a potential trade deal between the US and China, so often seen whenever high-level trade talks are about to resume, was cited as the catalyst.

Here’s the scoreboard at 8.15am in Sydney on Wednesday.

AUD/USD 0.7096 , 0.0037 , 0.52%
AUD/JPY 78.4 , 0.50 , 0.64%
AUD/CNH 4.8064 , 0.0069 , 0.14%
AUD/EUR 0.6260 , 0 , 0.00%
AUD/GBP 0.5502 , 0.001 , 0.18%
AUD/NZD 1.0534 , 0.0051 , 0.49%
AUD/CAD 0.9396 , 0.0005 , 0.05%

As has been the case for the past 10 session, the main theme of the session was the US dollar. However, having rallied in each of the previous nine sessions, this time it weakness in the US dollar index (DXY), rather than strength, that was the story on Tuesday.

Hopes for a trade deal between the US and China, or at least an extension to the hard deadline of March 1 when higher US tariffs are scheduled to begin, helped to lift stocks and Asian currencies, including the Aussie dollar.

“Market sentiment has been boosted over the past 24 hours by some more encouraging news on US-China trade negotiations,” said David de Garis, Economist at the National Australia Bank.

“White House press advisor Kellyanne Conway told Fox News that Trump ‘wants to meet with President Xi very soon’ while Trumnp added at a campaign rally that ‘we don’t want China to have a hard time’.

Adding further fuel to the rally in risk assets, Trump also hinted that he may be prepared to extend the deadline when higher tariffs may kick in.

“If we’re close to a deal where we think we can make a real deal and it’s going to get done, I could see myself letting that slide for a little while,” Trump said.

“But generally speaking I’m not inclined” to delay raising tariffs”.

The positive trade headlines, along with optimism that another US government shutdown may be avoided, ensured economic data and central bank speeches during the session were largely overlooked by traders.

In Australia, a small bounce in Australian business conditions in January helped kick-start the rally in the AUD/USD, helping to ease concern that momentum in the economy is slowing fast. News that new home loan lending tanked again in December was ignored as a result.

In the US, the data flow was mixed. Job openings rose to a record high in December although optimism at small businesses fell to the lowest level since Trump took office.

Towards the close, the AUD/USD is trading at .7096, up 0.52% from Monday.

Investing.comAUD/USD Hourly Chart

Against the crosses, the Aussie also gained against the Japanese yen and New Zealand dollar, the former reflecting the risk-on tone seen during the session while the latter was largely driven by expectations for a dovish shift from the RBNZ when it announces its February monetary policy decision later today.

“The RBNZ is widely expected to leave the cash rate at 1.75%, but the New Zealand dollar is vulnerable to a move lower against most major currencies if it shifts to a more dovish stance,” says Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.

“Specifically, the risk is high the RBNZ pushes out the forecast timing for hikes to the cash rate.

“The RBNZ currently projects a cash rate of 2.05% in Q1 2021 compared to the current cash rate of 1.75%.

“New Zealand interest rate futures have almost fully priced in a 25 basis point rate cut by the end of 2019.”

The decision will arrive at midday AEDT before RBNZ Governor Adrian Orr speaks at a press conference an hour later.

Aside from the RBNZ decision, there’s also likely to be some focus on the latest Westpac-MI Australian consumer sentiment index for February that will be released at 10.30am AEDT.

In January, the index skidded to multi-year lows, although seasonality may or may not have been a contributing factor behind the unusually large decrease.

Elsewhere, other highlights today include speeches from FOMC members Mester and George in early Asian trade. Japanese producer price inflation for January is also on tap while Chinese lending data for January may also be released.

Later in the session, the main events are UK CPI, Eurozone industrial production along with building permits, housing starts, CPI, goods trade, monthly budget figure, real employee earnings and EIA crude oil inventories in the United States.

Most attention will be on the US CPI print with core inflation tipped to grow by 0.2% in January, the same pace seen in December.

The UK CPI and Eurozone industrial data also carry the potential to generate market volatility.

The FOMC speakers calendar is also busy with Bostic, Mester and Harker all in action.

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