The Australian dollar is volatile as speculation over trade negotiations continues to shift

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  • The Australian dollar rose against most major currencies on Tuesday, despite mixed news on trade negotiations.
  • The big loser for the session was the British pound which was hit hard by negative Brexit headlines.
  • Australian Q3 construction work done will be released today. US Fed Chair Jerome Powell will also speak. Other than those events, the Aussie will likely take its cues from movements in the Chinese yuan — it has been all week.

The Australian dollar ground higher on Tuesday, managing to lift against most of the major crosses despite renewed strength in the greenback.

Here’s the scoreboard at 8.25am in Sydney on Wednesday.

AUD/USD 0.7225 , 0.0005 , 0.07%
AUD/JPY 82.21 , 0.20 , 0.24%
AUD/CNH 5.0247 , 0.0069 , 0.14%
AUD/EUR 0.6396 , 0.0024 , 0.38%
AUD/GBP 0.5673 , 0.0048 , 0.85%
AUD/NZD 1.0634 , -0.0026 , -0.24%
AUD/CAD 0.9607 , 0.004 , 0.42%

For a second consecutive day, the AUD/USD ground higher in Asian and European trade before unwinding most of those gains towards the close, a move largely reflecting broader shifts in investor sentiment during the session, particularly when it comes to trade.

Ahead of a meeting between Donald Trump and Xi Jinping in Argentina on Saturday, White House economic adviser Larry Kudlow provided mixed signals on the prospect of a trade breakthrough.

For the optimists, Kudlow said Trump believes “there is a good possibility that a deal can be made, and that he is open to that”. However, he countered that by suggesting additional or higher tariffs on Chinese goods could still be introduced.

“As we’ve all learned, he means what he says,” Kudlow said, referring to possibility of Trump following through with that threat.

Separate headlines on trade were also influential on the Aussie, contributing to the whippy price action seen during the session.

“In the European session the market mood briefly turned positive following a headline from China’s Foreign Ministry noting China and the US had agreed to reach mutually beneficial agreements on trade, but then the mood quickly unwound when China clarified this was a reference to Trump and Xi’s call early in November,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“Then we had German headline, citing ‘EU sources’, that suggested ‘Trump will possibly decide on tariffs as early as next week after the G20 meeting in Buenos Aires’.”

The former headline helped the AUD/USD hit its session high, the latter its session low.

Catril expects this trend will continue until Trump and Xi actually meet.

“The AUD remains very susceptible to US-China trade headlines, as such more of the same should be expected ahead of the Trump-Xi summit this weekend,” he says.

Along with mixed signals on trade, positive remarks from US Federal Reserve Vice Chair Richard Clarida ensured the Aussie’s gains against the greenback were muted.

Investing.comAUD/USD Hourly Chart

While the Aussie ground higher against the greenback, it rallied against the pound and euro, helped by continued shifts in sentiment towards the likelihood the Brexit withdrawal agreement will pass the UK Parliament.

“[The British pound] declined after a British economic think tank said Britain’s Withdrawal Agreement will lower UK economic output over the next decade more than remaining in the EU,” said Richard Grace, Chief Currency Strategist at the Commonwealth Bank.

“Further adding downward pressure to GBP, US President Trump also criticized the Withdrawal Agreement, saying that the deal may not allow the UK to do trade deals with the US.”

Turning to the day ahead, there’s plenty of economic data and central bank speeches set to be released — the only real question is whether financial markets will care ahead of the Trump-Xi meeting.

In Australia, Q3 construction work done will be released at 11.30am AEDT, providing the latest piece of Australia’s GDP jigsaw puzzle.

Eurozone monetary growth, along with Q3 GDP, new home sales, wholesale business inventories, goods trade and Richmond Fed manufacturing index from the United States, are the other data highlights on Wednesday.

US Federal Reserve Chair Jerome Powell is also scheduled to speak.

“An audience Q&A session and undoubtedly market participants will be looking for any hints on whether the Fed will lower its guidance for hikes in 2019 given recent turmoil in equity and oil markets coupled with a slowdown in the housing market and tighter financial conditions,” says Catril at the NAB.

In the absence of an unexpected shift from Powell, the Aussie’s broader direction today will likely be determined by movements in the Chinese yuan. Both currencies have been moving in lockstep so far this week, a trend that could well continue today.

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