Aussie range bound ahead of US/China Trade deal

AUD - Australian Dollar

The Australian dollar remained range bound through much of trade on Tuesday bouncing between intraday lows at 0.6885 and session highs at 0.6909. With little of note on the domestic docket the AUD turned to offshore stimuli and broader currency flows for direction, shifting marginally lower on the day as risk sentiment soured following reports the US will continue to impose existing tariffs on China through the signing of the first phase of the trade deal and likely beyond the US presidential election in November. The downturn was however counted by CNY upside. The AUD as a proxy for the Chinese Yuan found support in CNY gains as the Yuan touched five and a half month highs on Monday. Stage 1 of the trade deal and improved domestic trade data helped bolster demand for the local unit and supplied a floor for the AUD as investors remain optimistic improved trade relations will spark a recovery in global economic performance.

Attentions today remain squarely affixed to the signing of the trade deal as investors digest the official text/rhetoric attached to the agreement. We expect the AUD will remain largely within its recent bounds, with the possibility for extended moves should the official trade deal miss or exceed market expectations. Watch supports at 0.6850 and recent approaching 0.6930 and 0.70.

Key Movers

The Great British Pound found support through trade on Tuesday, bouncing back through 1.30 as investors looked to moderate recent losses. Sterling has come under increasing pressure through since the December election as the focus shifts again towards Brexit and a stagnating domestic economy. As the likelihood of a rate cut looms ever larger analysts have begun to reprice GBP forcing it toward 7 weeks lows earlier this week. While we anticipate the pound will remain under pressure through the coming months our immediate attentions turn to Today’s CPI inflation report and commentary from Bank of England and MPC policy member Michael Saunders for further direction. With other policy members already suggesting a rate cut is imminent a poor inflation print and dovish commentary from Saunders could force the Pound lower still. Initial supports at 1.2950 remain in play with extended downside toward and through 1.29 and 1.2850 possible through the day if money markets amplify rate bet expectations.

The Yen advanced through trade on Tuesday, recouping losses suffered through the end of last week as risk sentiment soured following report the US will not reduce tariff’s on China before the 2020 Presidential Election. The commentary has doused recent optimism that today’s signing of a Phase 1 trade deal would be the beginning of a full-scale de-escalation in trade tensions.

Expected Ranges

AUD/USD: 0.6830 - 0.6980 ▼

AUD/EUR: 0.6180 - 0.6230 ▲

GBP/AUD: 1.8680 - 1.9020 ▲

AUD/NZD: 1.0380 - 1.0480 ▲

AUD/CAD: 0.8950 - 0.9050 ▼