- The Australian dollar eased lower on Thursday, weighed down by caution ahead of trade talks between the US and China.
- The US has promised to lift tariffs on $US200 billion in Chinese imports on Friday. There are reports China will retaliate to any US move.
- With trade talks resuming later Thursday, economic data out today will be overlooked by markets.
The Australian dollar eased lower on Wednesday, giving back modest gains achieved earlier in the session.
Movements across broader currency markets remained contained as traders await clarity on trade talks set to resume between the United States and China in Washington later Thursday.
Here’s the scoreboard at 8am in Sydney on Thursday.
AUD/USD 0.6987 , -0.0001 , -0.01%
AUD/JPY 76.9 , -0.04 , -0.05%
AUD/CNH 4.7558 , -0.0013 , -0.03%
AUD/EUR 0.6238 , -0.0006 , -0.10%
AUD/GBP 0.5366 , -0.0005 , -0.09%
AUD/NZD 1.0622 , -0.0003 , -0.03%
AUD/CAD 0.9416 , -0.0001 , -0.01%
After briefly spiking in Asian trade following the Reserve Bank of New Zealand’s decision to cut official interest rates for the first time since late 2016 in May, leading to buying in the AUD/NZD cross, the Aussie’s gains were slowly whittled away throughout the session, undermined in part by continued unease over a potential escalation in US-Sino trade tensions.
David de Garis, Economist at the National Australia Bank, said a report from Reuters detailing why trade talks had broken down did little to improve sentiment.
“Sources said China backtracked on a range of legal issues throughout the text of the proposed 150-page trade agreement, reversing the key points of agreement on US demand,” de Garis said.
“Seen in this light, it is understandable why the US side has become very agitated.”
US President Donald Trump, as he did earlier in the week, did little to appease concerns via Twitter.
….Guess what, that’s not going to happen! China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers…great for U.S., not good for China!
— Donald J. Trump (@realDonaldTrump) May 8, 2019
Given that backdrop, it goes someway to explaining why the AUD/USD fell back below .7000 during North American trade.
Turning to the day ahead, trade talks will continue to dictate sentiment, especially in the second half of the session as both sides sit down for what is expected to be a two-day meeting.
“Chinese vice premier, Liu Hu, is scheduled to hold talks with US officials on Thursday and Friday to resolve differences over trade, intellectual property and cyber theft,” said Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.
“Without an agreement the US will increase the tariff rate on $US200 billion of imports from China from 10% to 25% on Friday. There are reports China’s Ministry of Commerce is preparing retaliatory countermeasures.”
The US tariff increase, if implemented, is scheduled to begin at 12.01am on the US east coast on Friday. There have been reports China will announce retaliatory measures one minute after the US tariff increase.
Given uncertainty over what lies ahead, economic data released Thursday will likely be overlooked by traders.
Chinese consumer and producer price inflation data for April will be released at 11.30am AEST.
Elsewhere, Canadian trade along with jobless claims, trade data and producer price inflation figures will be out in the US.
The central bank speakers’ calendar is busy with several FOMC members, including chair Jerome Powell, in action during the session.
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