The Australian dollar is teetering as traders await tariff headlines

  • The Australian dollar remains near the lowest level in over two years.
  • It lost further ground against the euro and UK pound on Monday on positive Brexit headlines.
  • Macquarie Bank strategists say the AUD/USD could fall to 70c in the coming days, depending on tariff and Chinese data headlines.

The Australian dollar was range-bound to start the week, holding just above two and half year lows struck on Friday.

However, it lost ground to European currencies on positive Brexit headlines.

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

AUD/USD 0.7112 , 0.0006 , 0.08%
AUD/JPY 79.02 , 0.13 , 0.16%
AUD/CNH 4.8859 , 0.0027 , 0.06%
AUD/EUR 0.6133 , -0.0019 , -0.31%
AUD/GBP 0.5459 , -0.0036 , -0.66%
AUD/NZD 1.0900 , 0.0022 , 0.20%
AUD/CAD 0.9361 , 0.0006 , 0.06%

After opening the session around .7100, the AUD/USD briefly popped higher in early Asian trade on news the National Australia Bank would not follow the lead provided by other major lenders in delivering an out-of-cycle increase to variable mortgage rates for its customers.

However, after initially gaining around 15 pips, the Aussie ran into a renewed wave of selling as Chinese stocks and yuan weakened in the latter parts of Asian trade.

The choppy price action continued into European trade as modest gains in stocks, as well as no major economic data or negative headlines in relation to trade, helped push the Aussie to session highs.

Those moves were subsequently reversed in US trade, reflecting that uncertainty towards trade negotiations between the US and China remains as high as ever, keeping optimism towards the Aussie in check.

In the end, the AUD/USD closed fractionally higher for the session.

AUD/USD Hourly Chart

While the Aussie recorded very little movement against the greenback, it lost ground to the Euro and UK pound, helped by positive Brexit headlines and stronger-than-expected UK economic data.

Speaking from Bled, Slovenia, Michel Barnier, the EU’s chief Brexit negotiator, said that a deal with the UK was “realistic in six to eight weeks”.

“I think it’s possible” to get a deal by the start of November, Barnier said. “We are not far from agreement.”

At the margin, an upward revisions to UK Q2 GDP also helped the pound, seeing it soar more than a big figure against the US dollar before trimming gains later in the session.

Turning to the session ahead, it will be another quiet on for economic news — at least based off the calendar — likely ensuring that headlines and sentiment continue to dictate broader market direction.

In particular, markets are waiting for news as to whether the US will implement tariffs totalling $US200 billion on Chinese imports entering the country. The announcement could arrive at any point given the period of public consultation on the proposed tariffs ended late last week.

Of what economic data there is, it’s unlikely to be of much interest to traders, at least in Asian trade.

In Australia, weekly consumer confidence figures will be released at 9.30am AEST. That will be followed two hours later by the NAB’s monthly business confidence survey for August, a report that may be impacted by the recent political turmoil in Canberra.

Regionally, electronic retail sales data will be released in New Zealand at 8.45am AEST. Chinese monetary growth figure for August, including new bank lending, could also arrive at any point during the session.

Later in the day, data highlights include UK unemployment, German ZEW survey, Eurozone employment along with NFIB small business optimism, wholesale inventories and JOLTS job openings from the United States.

While those releases could generate short-term volatility, Gareth Berry and Thierry Wizman, say the selloff in the Aussie could well extend in the days ahead depending on the news and data flow.

“We must now consider the likelihood that AUD/USD falls to 70c in the coming days, especially if Chinese economic data soften again this week and the US tariff threat materialises.”