- Conflicting reports on US-Sino trade negotiations sent the Aussie dollar on a wild rise in late trade on Thursday.
- The WSJ reported that US officials were considering watering down US tariffs on Chinese imports. A treasury spokesperson subsequently denied the claims.
- The economic data calendar is relatively quiet in Asia on Friday, clearing the way for headlines and speculation to drive broader market direction.
The Australian dollar has been on a wild ride over the past couple of hours, surging, then falling, on conflicting reports on US-Sino trade negotiations.
Here’s the scoreboard at 8.05am in Sydney on Friday.
AUD/USD 0.7189 , 0.0023 , 0.32%
AUD/JPY 78.49 , 0.32 , 0.41%
AUD/CNH 4.8687 , 0.0244 , 0.50%
AUD/EUR 0.6310 , 0.0025 , 0.40%
AUD/GBP 0.5534 , -0.0028 , -0.50%
AUD/NZD 1.0628 , 0.0056 , 0.53%
AUD/CAD 0.9547 , 0.0048 , 0.51%
After a quiet start to the session, volatility in the Aussie lifted late in North American trade on conflicting reports on US-Sino trade negotiations.
“A Wall Street Journal article indicated US officials were debating whether to pull back tariffs on Chinese imports,” said Richard Grace, Chief Currency Strategist at the Commonwealth Bank.
“The article suggests US Treasury Secretary Steven Mnuchin was pushing a more conciliatory strategy as a way to calm markets and provide incentive to Beijing to make further concessions in the trade negotiations with US Trade Secretary Lighthizer.”
The report saw the AUD/USD spike to as high as .7221, mirroring similar moves in other cyclical asset classes such as stocks.
However, much of the move was subsequently reversed just minutes later as a US treasury spokesperson poured cold water over the WSJ report.
“Neither Secretary Mnuchin nor Ambassador Lighthizer have made any recommendations to anyone with respect to tariffs or other parts of the negotiation with China,” the spokesman told CNBC. “This an ongoing process with the Chinese that is nowhere near completion.”
The denial from treasury saw the AUD/USD slide back below the .7200 level, but the initial pop higher was not completely unwound on the news.
“More often than not, where there is smoke there is also fire, but it is hard to tell at this stage,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.
Aside from the late fireworks in the Aussie created by the conflicting trade reports, the other big mover for the session was the British pound that continued to benefit from speculation that a “hard” Brexit from the EU is looking increasingly unlikely.
“GBP rose again overnight as expectations of a second referendum firmed despite UK PM Theresa May refusing to rule out no deal,” Grace said.
“Pressure to rule out no deal in Parliament is intensifying given the dramatic negative consequences.”
Traders clearly believe the odds of an extension to the Article 50 deadline, or a second referendum, are increasing, helping to fuel buying in the pound.
Turning to the day ahead, it’s hard to see anything other than headlines and speculation continuing to drive market direction despite the release of several major data reports.
The main scheduled highlights include Japanese inflation and industrial production, Eurozone current account, UK retail sales, Canadian CPI along with industrial production, and University of Michigan consumer confidence report from the US.
Harker and Williams from the US Fed are also due to speak.
Given the relatively quiet data calendar in Asia, movements in Chinese financial markets, particularly the yuan, could prove to be influential on those in the Australian dollar.
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