The Australian dollar fails to benefit from renewed trade optimism

  • The Australian dollar finished mixed on Friday, failing to benefit from renewed optimism on US-Sino trade negotiations.
  • China will release its Q4 GDP report today.
  • US markets will be closed for the Martin Luther King Holiday.

The Australian dollar finished mixed on Friday, failing to benefit from optimism towards US-Sino trade negations that fueled gains in other asset classes.

That remains the case in early trade in Monday morning.

Here’s the scoreboard at 7.55am in Sydney.

AUD/USD 0.7164 , -0.0003 , -0.04%
AUD/JPY 78.55 , -0.05 , -0.06%
AUD/CNH 4.8721 , 0.0005 , 0.01%
AUD/EUR 0.6302 , 0.0002 , 0.03%
AUD/GBP 0.5564 , 0.0005 , 0.09%
AUD/NZD 1.0609 , -0.0011 , -0.10%
AUD/CAD 0.9504 , -0.0044 , -0.46%

The main theme of Friday’s session was broad optimism towards a lasting trade truce between the United States and China, fueled by unsubstantiated reports of compromises from both sides of the negotiating table.

The Wall St Journal kicked things off, suggesting some US policymakers are willing to roll back tariffs on Chinese imports. A separate report from Bloomberg said China was willing to embark on a buying spree of US goods over the next six years, aimed at reducing China’s trade surplus with the US to zero by 2024.

Stocks and commodity markets reacted strongly to the reports, posting strong gains for the session. However, curiously, the Australian dollar did not, actually falling against the greenback while posting small gains against most of the major crosses.

“For now, markets are going ahead with the growing perception that there is a lot of willingness by both parties to make a deal, but as the March 1st deadline approaches the market is also likely to demand more concrete evidence that a deal looks more likely than not,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

AUD/USD Hourly Chart

Turning to the day ahead, China’s economy will be back in focus with the release of Q4 GDP data at 1pm AEDT.

From a year earlier, GDP is expected to expand by 6.4%, down from 6.5% in the year to September. The government’s growth goal for the year was an increase of around 6.5%.

If recent form is any guide, separate monthly readings on industrial output, retail sales and urban fixed asset investment — released at the same time — could actually prove to be more influential on markets than the GDP report itself.

Compared to December 2017, industrial output and retail sales are expected to increase by 5.3% and 8.2% respectively. In 2018, urban fixed asst investment is seen growing by 6%, up from 5.9% between January to November compared to the same period in 2017.

Outside of the China data there’s next to nothing on calendar to excite traders, especially with US markets closed for the Martin Luther King Holiday.

That suggests headlines and sentiment towards trade negotiations between China and the US may continue to drive market movements in the second half of the session.