AUD/USD: Bears in control despite risk-on U.S. session

  • While U.S. risk-on markets recover, AUD/USD is picking up the markets trade war concerns instead.
  • RBA likely to cut rates in due course.
  • Risk is towards 78.6% Fibonacci retracement at 0.6857.

The focus for the U.S. session is on how well stocks have managed to perform, despite the various geopolitical tensions swirling around financial and commodity markets. The risk-on session has enabled the Dollar to climb higher, notably vs the Yen while the Aussie now trades back below the key 0.6920 historic support level, pausing for air just above the post-Aussie Jobs Data 0.6892 low. 

The U.S. session was already looking like a positive one from futures pointing to a jump start open pointing to higher prices. Indeed, the Dow opened 0.37% higher and the NASDAQ was 0.17% higher at the open, extending yesterday's positive closes. What might be surprising at first glance is the resilience of investor appetite despite Trump's ban on foreign adversaries as trade wars escalate? 

Recalling back to yesterday's Wall Street close, U.S. President Donald Trump signed an executive order banning telecommunications equipment from “foreign adversaries”. This is obviously an attack on China’s Huawei and a clear escalation of the trade war, despite being told today by Commerce Sec. Wilbur Ross  that this is not part of the trade wars, (it clearly is):

  • Huawei order will be effective starting tomorrow.
  • Action is not part of trade talks with China.
  • Huawei wasn't discussed during US-China trade talks.

For investors to feel like we are moving closer to a deal, they might have another thing coming and such corrections we are seeing in today's markets could well be met with fierce opposition on the next retaliation from China. In fact, we should not ignore yesterday's comments from China’s Commerce Ministry saying that increased tariffs have “severely hampered” negotiations.

However, there was some relief yesterday when he announced that the US Administration would delay European auto tariffs for up to 6 months. Regardless of the trade war sentiment, the market today seems to care much more about positive earnings from Cisco Systems (CSCO) and Walmart (WMT) and upbeat U.S. economic data:

Currency action

As for the outcome in the FX space, risk-on is still not doing the Aussie any favours and the trade tensions are being felt here instead. The greenback has climbed to the highest levels since the 3rd May at 97.83, supported by a pop in U.S. yields as the stock market takes in investors cash. Additionally, there is a sense that tariff hikes are likely to filter through to create short term, but modest higher inflation, which potentially negates the need for the Fed to cut interest rates so soon, despite some still calling for lower inflationary risks following Fed's Powell palming off low inflation as just transitory. Subsequently, AUD/USD has been sold down again towards the overnight lows following the disappointments in the jobs data, for a low of 0.6895, so far, three pips shy of the low. The Aussie is under fire from speculation that the RBA will have no choice but to cut rates due to heightened risks to the economy associated with trade wars and trickle down outcomes due to the nation's dependency on, a) China as a trade partner and b) sales of commodities.

Aussie Jobs data

While headline April employment change of 28.4k was positive, the details throughout the Unemployment/Employment Report, (aka Jobs data) was not and was a nail in the coffin for the bulls and the Aussie is not going to be able to shake that off anytime soon, not with the RBA just a handful of weeks away in June. 

  • The Full-Time Employment number dropped -6.3k in April.
  • The Unemployment jumped to 5.2% (due to a pick up in the participation rate from 65.7% to 65.8%).
  • The Unemployment rate for Mar was revised up from 5.0% to 5.1%.

"Digging a little deeper into alternative measures the RBA looks at - the under-employment rate jumped in April, from 8.2% to 8.5% and together with the unemployment rate jump, this drove the underutilisation rate higher, from 13.3% to 13.7% in April. Today's data poses a risk of the Bank pulling the trigger before August, but our preference would be to fade a June cut,"

analysts at TD Securities argued. 

AUD/USD levels

Analysts at Commerzbank noted that AUD/USD continues its descent and hit the 0.6900 level:

"Further down sits the 78.6% Fibonacci retracement at 0.6857. Immediate bearish pressure should remain in play while no advance above the 50% retracement and the May 10 high at .7016/18 is seen. Further up resistance can be spotted along the 55 day moving average at 0.7072 and at the 0.7207 February high."






Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD struggling around 1.13 as stocks fall

EUR/USD is trading around 1.13, off the highs as concerns about coronavirus and the court decision to hand Trump's financial to a grand jury trigger political uncertainty. US jobless claims beat expectations.


GBP/USD pressured toward 1.26 as the market mood worsens

GBP/USD is trading around 1.26, off the highs. The risk-off mood has pushed the dollar higher and is weighing on GBP/USD. UK fiscal stimulus and Brexit are also in play.


Gold: $1800 is being used as the intraday support for XAU/USD

Gold has retraced on Thursday during the US session after the recent impressive rally. At the moment the market is grappling with the USD 1800 per troy ounce psychological level. 

Gold News

Altcoin season confirmed

Second-line Altcoins take turns offering explosive price hikes. Bitcoin is giving up ground in the struggle for dominance, but it is not Ethereum that collects the profits. Ripple manages to enter the safe zone and bets on the upward continuity.

Read more

WTI: Rounding bottom on hourly chart highlights $41.15

WTI stays mildly bid above $41.00 while remaining above 100-HMA. Multiple failures to cross $41.15 confront a bullish chart formation on a short timeframe. June month’s top, February low will be on the buyers’ radar after a successful break.

Oil News