- US-China trade tensions escalate as China retaliates
- Risk assets take a big hit - The equity board is a sea of red with US indices leading the decline
- Commodity link currencies bear the brunt within G10 – AUD now at 0.6948. JPY and CHF outperform
- UST yields sharply lower led by the front end of the curve. A Fed rate cut more than fully priced by December
- President Trump says he’ll meet President Xi at G20 late in June – Equities arrest their decline on the news
- Saudi Arabia claims two of its oil tankers are sabotage near the Strait of Hormuz
- NAB Survey the domestic focus, Zew Survey and NFIB out tonight
AUD/USD has made a fresh low to 0.6941, piercing below the 61.8% Fibo at 0.6951 as risk off markets dominate the FX space, for the meanwhile.
AUD/USD is currently trading at 0.6942, sinking within a range of between 0.7004 and 0.6941.
A Risk off start to the week as US-China trade talks remained in deadlock over the weekend is damaging commodity-FX, EM-FX and benefitting the safe havens, such as the yen and CHF.
China has now retaliated with a plan to impose higher tariffs which have put markets on caution, expecting a prolonged stalemate, (China denying that they had reneged on any prior agreements. Liu He said such changes were “natural” and he said the remaining differences were “matters of principle” ie China is unlikely to make concessions on such changes), potentially signalling for a weaker CNY which would usually weigh on the Aussie as well.
The RBA will be factoring this prolonged trade spat with the US and given the recent disappointment in inflation in the first quarter, the RBA is likely to remain in neutral for longer. As far as positioning, AUD net shorts dropped back last week following the steady policy decision from the RBA, however an increase in risk aversion and fears regarding an escalation of UK/China trade wars, additional shorts will likely be reflected in this week's data.
Analysts at Commerzbank noted that AUD/USD had been holding above the 0.6951 61.8% Fibonacci retracement, supported by the positive divergence can on the daily RSI. However, now that that level has been broken, eyes are now on 0.6857 78.6% Fibonacci retracement. On the flipside, "rallies will now find initial resistance along with the 55-day moving average at 0.7084 and will need to regain this for a viable shot at the 0.7207 February high to become likely," the analysts added.
Event Risk Today
- NZ Net Migration (Mar), Finance Minister Pre-Budget Speech
- BoP Current Account Balance Mar P
- AU NAB Business Conditions/Confidence (Apr) - In March Business Conditions printed at +7 and Confidence fell to a 5 year low of zero. On many occasions the RBA has emphasised the role of the NAB survey in understanding the current tension between weak growth and a strong labour market.
- Eurozone Industrial Production (Mar), Germany ZEW Survey (May) and CPI (Apr F)
- US Fed's Williams speaks in Zurich, NFIB Small Business Optimism (Apr), Fed's George Speaks in Minnesota