The RBA and trade headlines will determine where the Australian dollar heads next

Bob Chamberlin/Los Angeles Times via Getty Images
  • The Australian dollar recovered from an early tumble on Monday, although it still finished lower against most of the major crosses.
  • The US confirmed that tariffs on $US200 billion worth of Chinese imports entering the country will increase from 10% to 25% on Friday should trade talks this week fail to resolve differences.
  • The RBA interest rate decision will determine how the Australian dollar will trade in the second half of the Asian session. Australian retail sales and trade data will also be released.

The Australian dollar recovered from an early tumble on Monday, although it still finished lower against most of the major crosses.

It’s direction on Tuesday will likely be determined by the Reserve Bank of Australia’s (RBA) may interest rate decision, along with whatever trade headlines the session brings.

Here’s the scoreboard at 8am in Sydney.

AUD/USD 0.6984 , -0.0005 , -0.07%
AUD/JPY 77.3 , -0.11 , -0.14%
AUD/CNH 4.7420 , 0.0093 , 0.20%
AUD/EUR 0.6238 , -0.0002 , -0.03%
AUD/GBP 0.5333 , -0.0003 , -0.06%
AUD/NZD 1.0574 , 0.0005 , 0.05%
AUD/CAD 0.9398 , -0.0011 , -0.12%

After tumbling to a four-month low of .6963 in Asian trade following an escalation in trade tensions between the United States and China, the AUD/USD gradually recovered losses throughout European and North American trade, helped by reports that China was still planning to send a trade delegation to the US this week despite renewed threats from US President Donald Trump to raise tariffs on Chinese imports entering the United States this week.

“China’s foreign ministry confirmed officials were still planning to travel to the US this week for the next round of talks,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank (NAB).

According to a report from Bloomberg, Trump’s tweets threatening to lift tariffs this week were in response to China attempting to renegotiate already agreed components of the trade deal.

“China back-tracked on its agreement to make changes to laws aimed at ending the enforcement of US companies seeking to do business in the country to reveal proprietary technologies and other intellectual property,” Catril said, referring to the details in the Bloomberg report.

While sentiment was boosted by the news that a Chinese trade delegation, including Vice Premier Liu he, would still travel to the US to take part in trade discussions this week, remarks from US Trade Representative Robert Lighthizer and US Treasury Secretary Steve Mnuchin late in the session ensured risk appetite remained suppressed.

Mnuchin said the US isn’t willing to re-negotiate previous commitments. Lighthizer also acknowledged that tariffs on $US200 billion worth of Chinese imports — currently 10% — would increase to 25% at 12.01am US eastern time this Friday unless an agreement between the two sides is struck.

The AUD/USD fell modestly on the news, although it still remains above the levels were it opened Monday’s trading session.

AUD/USD Hourly Chart

While trade headlines will continue to dictate broader market sentiment, the Aussie’s short-term fortunes will be determined today by the RBA’s May monetary policy decision that will arrive at 2.30pm AEST.

Put simply, it’s a line-ball call as to whether or not the RBA will cut Australia’s cash rate to a new record low of 1.25%, ensuring there will be plenty of volatility either side of the announcement.

This 10-second guide has more on what to expect, including what the RBA may say in the accompanying monetary policy statement. That could easily be as influential as the actual rate decision.

Before the RBA announcement hits, markets will also receive Australian retail sales and trade data for March at 11.30am AEST.

Retail sales are tipped to increase by 0.2% following an unusually large spike of 0.8% in February. Quarterly retail sales volumes — the first of Australia’s Q1 GDP inputs — are expected to rise by a modest 0.3%, a result that will marginally add to economic growth during the quarter if realised.

For the trade balance, a surplus of $4.49 billion is eyed, down marginally from the record $4.8 billion level reported in February.

The Ai Group’s Australian Performance of Construction Index for April will also hit at 8.30am AEST.

Outside of the Australian data releases, the Asian economic calendar is quiet, paving the way for trade headlines and gyrations in Chinese financial markets to dictate broader sentiment.

Later in the session, other data highlights include Germany factory orders and industrial production, French trade along with JOLTS job openings and consumer credit data from the United States. The EU will also release updated economic forecasts.

On the central bank front, the Fed’s CEO and President Robert Kaplan and Vice Chair for Supervision Randal Quarles will be in action as will Andy Haldane, the chief economist at the BoE.

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