- The Australian dollar rallied against all of the major crosses on Monday.
- Continued optimism towards US-Sino trade negotiations was the chief catalyst behind the Aussie’s strength.
- There’s little on the economic calendar in Asia, leaving Chinese markets to dictate sentiment levels.
- US Fed Chair Jerome Powell will be in action in the second half of the session. There’s also a raft of second-tier economic data released in the US.
The Australian dollar rallied hard to start the week, gaining ground against all of the major crosses on Monday.
A delay in US tariff increases on Chinese imports entering the country — which helped propel gains in global stocks — was the chief catalyst behind the bid in the Aussie.
Here’s the scoreboard at 8am in Sydney on Tuesday.
AUD/USD 0.7171 , 0.0044 , 0.62%
AUD/JPY 79.61 , 0.74 , 0.94%
AUD/CNH 4.7919 , 0.0133 , 0.28%
AUD/EUR 0.6309 , 0.0024 , 0.38%
AUD/GBP 0.5473 , 0.0023 , 0.42%
AUD/NZD 1.0412 , 0.0018 , 0.17%
AUD/CAD 0.946 , 0.0098 , 1.05%
After opening at .7127, the AUD/USD rose strongly in early Asian trade following a series of tweets from US President Donald Trump that helped to fuel optimism that a lasting trade truce between China and the US will be reached.
“It all started with a couple of tweets,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.
“President Trump twitted ‘I will be delaying the U.S. increase in tariffs now scheduled for March 1. Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement. A very good weekend for U.S. & China!
“The news boosted risk appetite with Asian equities performing across the board while emerging market FX and commodity-linked currencies also joined the party.”
The tweets saw the AUD/USD lift above .7150, supported by renewed strength in Chinese stocks and the Chinese yuan which both hit multi-month highs during the session.
The buying in the Aussie continued into European trade, seeing the AUD/USD lift to as high as .7184 before easing slightly towards the close.
Bullish price action in European and US stocks helped to support the Aussie despite some sizable falls in iron ore and crude oil prices.
Like the Aussie, the New Zealand dollar was also supported by trade optimism, along with a large beat in New Zealand retail sales volumes in the fourth quarter of last year.
The British pound was also in demand as speculation about a potential second Brexit referendum increased.
“The opposition Labour Party leader, Jeremy Corbyn, has agreed to support a new referendum on the UK’s membership of the EU,” said Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.
“Corbyn’s change of mind does not mean a referendum will happen because there are still ‘hard Brexiteers’ in both the Labour party and the ruling Conservative party that may seek to block another referendum.”
The two big losers for the session were the Japanese yen and Canadian dollar — the former undermined by the improvement in investor risk appetite while the latter was hit hard by a Trump-tweet initiated plunge in crude prices.
Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!
— Donald J. Trump (@realDonaldTrump) February 25, 2019
Turning to the day ahead, the performance of Chinese stocks and yuan are likely to be influential once again on broader market movements in Asian trade, especially with little on the economic calendar in the first half of the session.
Reserve Bank of New Zealand Deputy Governor Geoff Bascand will speak at 10.30am AEDT. Other than that event, there’s very little else to look at, leaving headlines, technicals and Chinese markets to dictate direction.
In the second half of the session, the main highlight will be Federal Reserve Chair Jerome Powell’s appearance before the US Senate Banking Panel starting at 2am AEDT.
“Markets expect he will reiterate his intention to be ‘patient’ with further interest rate increases,” says Catril at the NAB.
“Powell is likely to be quizzed on the Fed’s plans for the balance sheet, and the circumstances under which it could resume rate hikes.”
Aside from Powell’s appearance, markets will also receive German consumer confidence along with consumer confidence, housing starts, building permits, home prices and Richmond Fed manufacturing index from the United States.
Senior Bank of England officials will appear before parliament for its inflation report hearing.
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