The Australian dollar is under pressure again

Jeff J Mitchell / Getty Images
  • The Australian dollar has fallen heavily in early Asian trade on Monday, losing ground against most of the major crosses./strong>
  • News that trade negotiations between the US and China have broken down may explain the sudden burst of selling.
  • Japanese and Chinese markets are closed for public holidays today. The data calendar is also quiet. This should see activity levels across markets substantially lower than usual.

The Australian dollar has fallen heavily in early Asian trade on Monday, losing ground against most of the major crosses, especially the greenback.

Here’s the scoreboard as at 7.25am in Sydney.

AUD/USD 0.7268 , -0.0021 , -0.29%
AUD/JPY 81.76 , -0.06 , -0.07%
AUD/CNH 4.9816 , 0.0031 , 0.06%
AUD/EUR 0.6186 , -0.0001 , -0.02%
AUD/GBP 0.5555 , -0.0003 , -0.05%
AUD/NZD 1.0892 , 0.0009 , 0.08%
AUD/CAD 0.9393 , -0.002 , -0.21%

After closing last week at .7289, Ray Attrill, Head of FX Strategy at the National Australia Bank, says reports that China has cancelled trade talks with the United States ahead of the introduction of new US tariffs on Chinese imports at midnight Washington time likely explains the weakness in the AUD/USD this morning.

“Both the AUD and NZD have opened almost half a per cent lower this morning on the weekend news that China has cancelled trade talks with the US,” he says, adding that “this really shouldn’t have come as any great surprise after last week’s events”.

Attrill suspects that the dip in the AUD/USD will be “bought back later this morning”.

The sudden drop in the AUD/USD can be seen in the hourly chart below from Investing.com, although the Aussie still remains well above the levels seen earlier in September.

Investing.comAUD/USD Hourly Chart

Helping to explain the Aussie’s recent resilience despite a ratcheting up of trade tensions between the United States and China, data from the US Commodity Futures Trading Commission (CFTC) on Friday revealed long speculative positions in the US dollar continued to build early last week, leaving the greenback vulnerable to profit-taking by traders.

Short positions in the AUD were also higher than a week earlier, hinting that short covering among speculators likely contributed to the Aussie’s rebound back above the 73 cent level on Friday.

Strength in commodity prices, especially in base metals, may have also provided the Aussie with a tailwind during the session.

Against the crosses, the Aussie also gained ground against the British pound on Friday on renewed concern that a deal to avoid a hard Brexit is no closer to being agreed.

Hinting that it could be a fairly quiet start to the week for markets, particularly in Asia, both Chinese and Japanese markets will be closed on Monday for public holidays. This will drain liquidity from markets, raising the possibility of skittish, largely unexplained gyrations, in the first half of the session.

There’s also no major data releases scheduled in Asia, a scenario that will likely keep activity levels to a minimum.

Later in the day, the data calendar does begin to pickup with German business confidence, CBI Industrial Orders from the UK and Chicago Fed National Activity Index and Dallas Fed manufacturing survey the headline acts.

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