The Australian dollar was charging higher until trade tensions flared again

PHILIPPE LOPEZ / AFP / Getty Images
  • The Australian dollar is under pressure to start the new trading week, pulling back from multi-month highs struck on Friday.
  • Renewed trade tensions between the United States and China are behind the latest selloff.
  • The AUD/USD had surged to the highest level since late August on Friday following cautious remarks from several leading US Federal Reserve officials.

The Australian dollar is under pressure to start the new trading week, pulling back from multi-month highs struck on Friday.

Renewed trade tensions between the United States and China are behind the latest selloff, helping to partially offset more cautious language from leading US Federal Reserve officials.

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

AUD/USD 0.7305 , -0.0029 , -0.40%
AUD/JPY 82.36 , -0.25 , -0.30%
AUD/CNH 5.0544 , -0.0124 , -0.24%
AUD/EUR 0.6406 , -0.0004 , -0.06%
AUD/GBP 0.5693 , -0.0009 , -0.16%
AUD/NZD 1.0644 , 0.0008 , 0.08%
AUD/CAD 0.9641 , 0.0053 , 0.55%

After ending Friday’s trading session at .7334, the highest close since August 28, the AUD/USD currently sits at 0.7305, losing ground following a clear lift in trade trade tensions between the United States and China at the 2018 APEC Summit held in Papua New Guinea over the weekend.

“We have taken decisive action to address our imbalance with China,” US Vice President Mike Pence said at the summit.

“We put tariffs on $US250 billion in Chinese goods, and we could more than double that number.”

“The United States, though, will not change course until China changes its ways.”

The blunt message delivered by Pence suggests hopes for a trade breakthrough at the G20 summit in Argentina later this month may be premature.

Donald Trump and Xi Jinping are scheduled to meet on the sideline of the summit to discuss trade. Recent comments from both sides of the trade dispute suggested that tensions were thawing ahead of this meeting before Pence’s latest rebuttal.

Given the language used, it appears that a near-term deal is unlikely, resulting in the Aussie falling modestly against most major crosses given its often regarded as being a China-proxy.

Investing.comAUD/USD Hourly Chart

The losses in the Aussie this morning are in stark contrast to the moves seen on Friday with the AUD/USD ripping higher on the back of somewhat dovish commentary from several leading US Federal Reserve officials.

“Comments from Fed officials on Friday, in particular recently installed Vice-Chair Rich Clarida and Dallas Fed President Bob Kaplan acknowledging a global slowdown and downside risks as being relevant to Fed policy, and a WSJ interview with Philly Fed President Patrick Harker questioning a December rate hike, sparked a bout of US Treasury buying and US dollar selling,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.

Clarida, the newly-appointed vice-Chair of the Federal Reserve, told CNBC that US interest rates were nearing the Fed’s estimate of a neutral, and that being at neutral “makes sense”.

On top of solid Australian jobs report for October released a session earlier, the remarks saw the AUD/USD surge to as high as .7340, a level not seen since late August.

However, those gains are quickly being eroded in early Asia trade on Monday.

Whether that trend continues or reverses throughout the remainder of the session will likely come down to headlines, sentiment and technicals given a dearth of first-tier economic data releases.

There’s really none that appear likely to influence market pricing significantly until the second half of the session, and even that’s being generous.

Eurozone current account data for September, along with the latest US NAHB home builder survey for November, are the most likely to attract some interest.

On the central bank front, Kuroda of the BoJ and John Williams of the New York Fed are also scheduled to speak. Williams is regarded by most as being a policy centrist, meaning his remarks may be influential today following those from Clarida and Powell in recent days.

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