The Australian dollar is grinding higher as trade tensions begin to thaw

LEON NEAL/AFP/Getty Images
  • The Australian dollar rose modestly against the greenback on Wednesday, supported by positive signals on US-China trade negotiations.
  • The British pound was the big mover during the session, helped by speculation that Theresa May will survive a no-confidence vote on her leadership.
  • The main event today will be the ECB’s December monetary policy meeting.

The Australian dollar continues to grind higher against the greenback, supported by an improvement in investor risk appetite on Wednesday.

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

AUD/USD 0.7216 , 0.001 , 0.14%
AUD/JPY 81.69 , 0.01 , 0.01%
AUD/CNH 4.9567 , -0.0184 , -0.37%
AUD/EUR 0.6343 , -0.0023 , -0.36%
AUD/GBP 0.5717 , -0.0052 , -0.90%
AUD/NZD 1.0517 , 0.0046 , 0.44%
AUD/CAD 0.964 , -0.0006 , -0.06%

After opening the session at .7206, the AUD/USD rose in Asia only to fall in Europe, maintaining the familiar patter seen over the past week. However, it regained its positive momentum during the North American session on reports of a further thawing in trade tensions between the United States and China.

“There has been the sharp improvement in sentiment towards the US and China settling a good chunk of their trade differences,” said Ray Attrill, Head of FX Strategy at the National Australia Bank (NAB).

“Overnight, the WSJ has reported that China was drafting a replacement for the Made in China 2025 policy. The report said China is considering delaying some of its targets to 2035 and put more focus on improving industry standards, with the new policy planned to be rolled out early next year.”

Attrill says this is “perhaps the main sticking point in the US-China trade war, and a change in direction from China on this front would increase the chances that the two sides come to an agreement next year”.

Additional reports that China had resumed purchases of US soybeans helped to boost sentiment levels further, seeing the AUD/USD lift to .7238, the highest level in nearly a week.

There was little reaction to the release of US CPI data for November which printed in line with market expectations.

The AUD/USD currently trades at .7216.

Investing.comAUD/USD Hourly Chart

Against the major crosses, the Aussie put in a mixed performance, lifting strongly against the New Zealand dollar but falling against the British pound and euro.

“The AUD has been supported [against the Kiwi] by the improved Sino-US trade mood music, perhaps reflecting some unwinding of short AUD/NZD positions,” Attrill said.

The British pound was boosted by speculation that UK Prime Minister Theresa May will survive a no-confidence vote brought about by some members of her party. The outcome of the vote is expected imminently.

The move in the pound also helped to boost the euro, albeit by a smaller margin, along with signs that a budget agreement between Italy and the European Commission may soon be reached.

“The EU and Italy seem close to agreeing 2019 budget deficit target that will be very close to 2% of GDP,” Attrill says.

Turning to the day ahead, there’s very little on the economic calendar in Asia that will interest traders, pointing to the likelihood that speculation over trade negotiations between the US and China will dictate broader market direction.

The Reserve Bank of Australia’s will release its semiannual bulletin at 11.30am AEDT. While there’s likely to be plenty of interesting views and information, it’s unlikely to move the Aussie by any significant margin.

Later in the session, the main data highlights include inflation figures from Germany and France along with trade prices and jobless claims data from the United States.

The European Central Bank (ECB) will also announce its December monetary policy decision, including the likely conclusion of the bank’s asset purchase program.

“We expect the Governing Council to confirm at end of the Asset Purchase program (APP),” Attrill says.

He says the bank’s updated growth and headline inflation forecasts may be lowered at this meeting, although he expects the ECB’s forward guidance on rate — suggesting official policy rates are likely to increase in the second half of next year — will be retained.

“There’s likely to be a dovish emphasis in the press conference to provide assurance that accommodative policy is set to remain for a good while yet,” Attrill says.

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