AUD/USD bears chasing the gap before a look in back to test 200-D SMA offers

• AUD/USD has dropped in a hang-over to the opening Sino/US cease-fire agreement gains which now look to be in dispute among experts, calling out the uncertainties within the detail of the agreement that could throw a spanner in the works. 
• The decline in Treasury yields and yesterday’s inversion of the US curve in the 2 yr to 5 yr area can be associated with the softer tone of the greenback.
• The Reserve Bank Board left the cash rate unchanged at 1.50% at its December board meeting overnight.

AUD/USD, at the time of writing, is currently trading at 0.7337, down from a high of 0.7393 after making a North American and recent low of 0.7326. The pair is off the opening gap high where it started the week at 0.7393. The gap is under threat which is located at around 0.7317 and is a prime target for the bears. the recent price action is likely associated with profit taking as the pair moves in on the target - gaps typically get filled. 

Meanwhile, markets have switched to risk-off mode. USD/JPY is printing a low of 112.57 while AUD/JPY is testing back down to the 38.2% fibo of the 2018 trend at 82.56, the session low so far. The concerns on the markets are centred around the delicate tones surrounding and details within the Sino/US cease-fire and markets seem to be having a ‘morning after’ feeling, throwing in doubts over the sustainability of the deal. The details of the agreement are ambiguous, for instance, there is no specific agreement with China on auto tariffs. The Trump administration has sought changes in its trade relationship with China to fix what it calls trade abuses, but if China doesn't play ball, Trump has threatened to slap more tariffs on China. 

Just a thought

Meanwhile, a risk down the line for Australia, in the assumption that a deal can be thrashed out between the US and China, is that China is supposed to start buying the Agricultural product. "President Xi and I want this deal to happen, and it probably will." As Trump tweeted earlier. Australia relies on China to buy its own Agricultural product, so we will see how that plays out and what the implications are for the Aus/China trade relationship and, subsequently, the Australian currency. 

RBA on hold until 2021

Elsewhere, traders were attending to the RBA overnight where the currency remains steady with the Central Bank leaving the cash rate at 1.50% for a 28th straight month. The RBA statement was very similar to November, as they remain in a holding pattern." We continue to expect that the cash rate will be on hold through 2019 and 2020.," analysts at Westpac Banking Corporation argued, adding: 

"Clearly, developments in global trade are tempering the Bank’s views on the global economy. In November, the Governor referred to “uncertainty from the direction of international trade policy in the United States”. In this Statement, he is much more explicit noting “there are, however, some signs of a slowdown in global trade partly stemming from ongoing trade tensions”."

We will now look to Australian Q3 GDP data due on Wednesday at 0030 GMT, (+0.6 pct f/c, 3.3 percent pace for the year).

AUD/USD levels

The 200-D SMA is located 0.7415, guarding the 38.2% fibo of the 2018 downtrend - this is where further selling interest comes in, but at this juncture, the gap will most likely be a target before any signs of a serious correction emerge. However, it remains bid above the 55 day ma at 0.7190 and initial support is offered by the near-term uptrend at 0.7240.