- The Australian dollar is trading off the highs struck earlier on Monday.
- Doubts about the trade truce struck between the United States and China, a strong manufacturing PMI report from the US and comments from a senior US Federal Reserve official has seen the Aussie rally stall.
- Australia will receive some key GDP inputs ahead of the national accounts that will be released on Wednesday. The RBA will also announce its final interest rate decision of 2018.
The Australian dollar is trading higher in late trade on Monday, continuing to benefit from a lift in risk aversion following a temporary trade truce stuck by the US and China last weekend.
However, it is off the highs struck earlier in the session, suggesting that traders aren’t convinced that trade tensions have been resolved but postponed.
Here’s the scoreboard at 8.10am in Sydney on Tuesday.
Having surged to as high as .7393, the AUD/USD currently sits at .7353, mirroring the price action seen in other risk assets which surged in initial trade before giving back ground in the latter parts of the session.
“Initial gains faded as the night went by reflecting a sense of cautiousness given lack of details from the ceasefire agreement and conflicting reports,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.
“As the US-China trade news raised some questions and equity markets faded, the AUD/USD gave back some of its early gains.”
Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank, expressed doubt that the truce agreed by the US and China will lead to a longer-lasting solution on trade.
“We do not expect the Chinese government to make large changes to its ‘Made in China 2025’ industrial plan,” he says.
“The US and Chinese governments are unlikely to bridge their differences on trade. If no new trade deal is reached within 90 days, the US will increase the tariff rate on $US200 billion of imports from China from 10% to 25%.”
Contributing to the Aussie’s modest pullback from highs struck earlier in the day, the US ISM manufacturing PMI rose strongly in November — bucking the trend seen in most US economic data released in recent weeks — helped by improved readings for new orders and employment.
That helped to lift shorter-dated US bond yields, helping to support the greenback.
Catril says comments from US Federal Reserve Vice Chair Richard Clarida may have also helped the US dollar to climb off the lows seen earlier in the day.
“Clarida’s comments looked a little hawkish as he played up the ‘symmetry’ around the Fed’s inflation target, no concern about overshooting the Fed’s 2% inflation target and playing down the concept of a ‘Powell put’, cautioning investors against thinking that the Fed would act to halt a sharp stockmarket decline,” he said.
Turning to the session ahead, market attention will slowly switch back to factors other than trade with the release of several key economic data points in Australia.
Ahead of Australia’s Q3 GDP report on Wednesday, the ABS will release net exports and government demand figures at 11.30am AEDT. Both a significant parts of the Australian economy, and will help solidify views as to how strong or soft the GDP report may be.
The Reserve Bank of Australia (RBA) will also announce its final interest rate decision for 2018 at 2.30pm AEDT. While the cash rate is certain to remain at 1.5%, there are prospects for a few tweaks to the accompanying policy statement, especially surrounding the housing market.
This 10-second guide has more on what to look out for in the release.
Later in the day, other highlights include UK construction PMI, Eurozone producer price inflation and the Empire State manufacturing index from the United States.
On the central bank front, Mark Carney of the BoE and John Williams of the New York Fed are the headline acts.
Given that sentiment towards trade is likely to remain a key driver of market movements in the near-term, the performance of Chinese financial markets, especially the Chinese yuan, could prove to be influential on the Aussie dollar throughout the session.
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