AUD/USD: Bears showing their intentions should phase-one deal disappoint
|- News that China is no longer being pegged as a currency manipulator and Chinese trade balance were a plus.
- AUD/USD runs risk of downside should US/Sino trade deal disappoint.
AUD/USD is trading on the back foot in recent trade, with the 0.69 handle being pressured as tests of the figure have seen a dip to a low of 0.6885 so far in the US session.
AUD/USD is currently trading at 0.6900 at the time of writing, down from 0.6909 within a tight range. However, as we move into the trade deal announcements, scheduled tomorrow around the signing ceremony, we can expect some volatility on the details of the accord.
Tariffs are likely to stay in place
The latest news doing the rounds is that existing tariffs on billions of dollars of Chinese goods coming into the US are likely to stay in place until after the election in November, "and any move to reduce them will hinge on Beijing’s compliance with the terms of a phase-one trade accord," people familiar with the matter said, Bloomberg News reports.
Meanwhile, as analysts at ANZ bank explained, "market’s await phase one of the US-China trade deal," which is expected to be signed in Washington tonight. "News of the deal has provoked a sense of optimism in markets, in contrast to the shadow from US-China relations."
China is no longer being pegged as a currency manipulator
Yesterday, we got the news that China is no longer being pegged as a currency manipulator, by the US Treasury which propelled the yuan higher, (AUD tends to trade in tandem with the yuan, so could find some support there going forward).
"There is a sense that recent developments will bolster global growth and that downside risks to trade may have subsided somewhat. But nonetheless, scope for disappointment remains, with phase two of the deal – in which some key areas of contention will be hashed out – yet to be negotiated," analysts at ANZ Bank argued.
US dollar caving
As for the US dollar, there was a slight disappointment in the data today, which reinforces the Fe's policy, and the DXY bled out to below the 21-hour moving average, falling from 97.56 to a low of 97.36. the US December headline CPI rose 0.2% m/m, bringing headline inflation to 2.3% YoY from 2.1%. However, core inflation was steady at 2.3% YoY.
"The main weakness in the month came from airfares, used cars and trucks, while services inflation (60% of the index) is up 3.0% y/y. The Fed wants to support a recovery in inflation expectations and is happy to let inflation pressures intensify," analysts at ANZ said, who expects that policy settings will remain accommodative for quite some time.
China trade balance back in shape
The Australian dollar was firmer after China released positive trade numbers for December. Exports rose by 7.6% in December by a significant increase from November’s decline of 1.3%. Economists polled by Reuters were expecting the exports to grow by 3.2%. Imports rose by 16.3% in December in the fastest growth rate since October 2018, higher than the previous increase of 0.6%. These numbers are important for the Aussie that trades as a proxy considering Australia ships two-thirds of its goods to China.
AUD/USD levels
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