Trade tensions push the Australian dollar to an 18-month low

Ted Aljibe/AFP/Getty Images
  • The AUD/USD fell to the lowest level since January 2017 on Wednesday.
  • Renewed concerns about the Chinese economy, as well as trade tensions between China and the US, were the main catalysts behind the slide. Higher crude prices helped the Aussie to perform better against the crosses.
  • Trade headlines and the performance of Chinese financial markets will likely dictate sentiment during the Asian session.

Trade war fears continue to weigh on the Australian dollar.

It fell heavily against the greenback on Wednesday, briefly touching lows not see since January 2017.

However, as seen in the scoreboard below as at 7am in Sydney, it fared better against the crosses, perhaps helped by another surge in crude prices.

AUD/USD 0.7338 , -0.0055 , -0.74%
AUD/JPY 80.9 , -0.46 , -0.57%
AUD/CNH 4.8542 , -0.0104 , -0.21%
AUD/EUR 0.6350 , 0.0004 , 0.06%
AUD/GBP 0.5593 , 0.0004 , 0.07%
AUD/NZD 1.0798 , 0.0027 , 0.25%
AUD/CAD 0.9787 , -0.0044 , -0.45%

The Aussie was under pressure from the get-go on Wednesday, undermined by a continued slide in the Chinese yuan which fell to its weakest level since late 2017 during the Asian session.

Chinese stocks were also hammered, keeping the Aussie under pressure.

“Adding to the risk-off mood was some coverage of what looked to be a worrying internal Chinese think tank report on deleveraging and liquidity that had appeared briefly on the Internet on Monday, before being removed,” said David de Garis, Economist at the National Australia Bank.

“The National Institution for Finance and Development warned that ‘China is currently very likely to see a financial panic’.”

The report said that “preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years”.

“How much credence to give the report is not known, but it did add to negative investor sentiment,” de Garis said.

While the Aussie briefly managed to recover in European trade, helped by an apparent lessening in trade tensions between the United States and China, the mood among investors soured in North American trade following remarks from Larry Kudlow, an economic advisor to US President Donald Trump.

“President Trump confirmed yesterday’s news reports that he would use the existing committee that scrutinises foreign acquisitions of US companies to limit Chinese investments in sensitive American technologies rather than use a more confrontational approach of executive orders,” de Garis said.

“[However, risk sentiment] reversed course after Trump’s economic advisor, Larry Kudlow, said that China’s reply to US trade demands has not been satisfactory so far, and that Trump was not retreating on China and that the committee’s powers would be beefed up.”

That saw risk assets fall heavily, including the AUD/USD which tumbled to as low as .7323, a level not seen since early January 2017.

Investing.comAUD/USD Daily Chart

Turning to the day ahead, trade headlines and the movements in Chinese financial markets will continue to dictate the direction of the Aussie.

In particular, the People’s Bank of China’s yuan fixing around 11.15am AEST carries the potential to generate short-term volatility across markets. Chinese stocks will also resume trade at 11.30am, having fallen heavily in recent days.

The data calendar is likely to take a back seat today, although there’s a smattering of releases that traders may want to keep an eye on.

Japan will release retail sales figures for May at 9.50am AEST. Australian job vacancies will also be released at 11.30am AEST.

Later in the session, German, Spanish and Italian consumer price inflation data will be the headline act in Europe. Eurozone consumer sentiment, as well as Italian public finance data, will also be released.

In the United States, the final read of Q1 GDP, initial jobless claims and Kansas Fed manufacturing index will also arrive during the session.

On the central bank speakers front, Bullard and Bostic from the US Fed, along with Andy Haldane, Chief Economist at the Bank of England, will be in action.

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