AUD/USD consolidates losses to 0.6850, trade/Brexit fears stay on the cards

• AUD/USD bounces off 100-day EMA following mildly positive news concerning the UK and New Zealand’s banking.
• Overall risk tone stays under pressure amid fears of a hard Brexit, prolonged US-China tension.
• A lack of major data/events at home keeps the traders guided to trade/Brexit headlines.

AUD/USD retraces the week-start losses to 0.6855 amid initial trading hours of Wednesday’s Asian session. The pair dropped heavily on Tuesday as fears of hard Brexit and the US-China trade differences kept the riskier assets down. The recent uptick from 100-day Exponential Moving Average (EMA) could be attributed to global rating agencies’ positive outlook towards the UK as well as trade-positive news concerning New Zealand’s banking sector.

While S&P revised its outlook for the UK’s creditworthiness to stable from negative, Fitch affirmed the ‘AA’ status and emphasized the likeliness of Britain leaving the EU with an agreement on January 31, 2020. Further, news that the Reserve Bank of New Zealand (RBNZ) will oversee financial stability and introduce bank deposit insurance also helped the Aussie pair.

Even so, the overall risk sentiment remains on the back foot as the rating giant Fitch mentioned that phase one US-China trade deal alone unlikely to eliminate uncertainty given prolonged phase two negotiations on structural issues. Earlier, the US Trade Representative (USTR) Robert Lighthizer said that phase-one deal with China is totally enforceable.

Exerting heavy downside pressure on the risk tone are the concerns of a hard Brexit. Having secured a clear majority at home, the UK PM is all set to put forward a bill that will crash Britain out of the European Union with a transition period not extending beyond 2020. The news changed the market’s risk sentiment concerning the Brexit and dragged the riskier assets, together with the British pound (GBP), to the south.

With this, the US 10-year treasury yields remain one basis point down to 1.87% while Wall Street registered mild gains and the S&P 500 Futures down -0.16% to 3,193.

Also contributing to the pair’s declines were dovish comments from the Reserve Bank of Australia’s (RBA) minutes of the latest monetary policy. The minute statement highlighted the fears of further rate cuts while keeping the words like “ready to ease again…”

Given the absence of major data at home, market players will keep eyes on trade/Brexit headlines for fresh impulse.

Technical Analysis

A daily closing below 100-day EMA level of 0.6845 can drag the quote to 0.6835/30 support confluence including 50-day EMA and an upward sloping trend line since November 29. However, the further downside might not hesitate to question 0.6800 mark. On the upside, 200-day EMA around 0.6930 acts as the key resistance.