AUD/USD: Whipped between 0.7071/31 on a Valentine's Day mixed love affair with data surprises and trade negotiations

• AUD/USD bleeding out from trade talk wounds, albeit somewhat patched up by terrible surprise U.S. retail sales data and healthy Chinese trade data. 
• AUD/USD is currently trading at 0.7088, up from the 0.7071 lows but well below the highs of 0.7131.

AUD/USD trades as a proxy to a cocktail of Chinese / EM headlines and data. It is also regarded as 'the' commodity-FX currency and will respond to investor risk appetite. There has been a move back in focus to economic data of late, and to quote analysts at TD Securities, "as a trading signal, the FX market has a mixed love affair with data surprises. Sometimes they matter, sometimes they don't."

Yesterday's U.S. CPI data was solid and was perceived to be a likely set up for a tidy U.S. retail sales number today, helping to remove some of the easing bias priced into the US rates. However, quoting analysts at ING Bank, "There’s no doubt about it, December’s US retail sales figures are off-the-charts bad."

"The broad-based nature of December's decline in sales will add to fears the US economy is entering a softer phase. The control group, which excludes a variety of volatile items, fell by 1.7% on the month, the scale of which has only been matched once before (in the aftermath of the September 2001 attacks)," the analysts at ING bank explained. 

AUD/USD gets whipped

AUD/USD initially rallied from 0.7109 to 0.7120 but was quickly faded back to 0.7110 and then continued to bleed out for the rest of the session so far, printing a low of 0.7071. 

While the retail sales data was concerning, it was one month's data. There are plenty of supportive pillars around that data that suggests that this should be just a blip. "But there are a few reasons to treat these numbers with caution, as we think the strong jobs market should support a rebound over coming months," analysts at ING Bank explained. Overall, the outlook for consumers still looks solid but, for sure, retail sales data over the next couple of months will be closely monitored for improvement. 

Indeed, the dollar was somewhat softer following an upbeat Chinese trade report, but investors are nervous over Sino and US trade relations which is making any upside in AUD on such data fragile and traded with caution. 

US/China trade talks hit a road-bump, as widely expected

The US and China "have made little progress so far" during talks in Beijing, according to a WSJ report and a more recent Bloomberg story repeating the information. There was a knee-jerk move in markets but this is something that was always going to be problematic as the US essentially wants China to bow down to them and change the manner in which they operate with respect to regulation standards, (corporate governance), and structural reforms - "an extremely sensitive issue that is seen as a non-starter for Chinese leaders," the Bloomberg story argued, adding, "The hurdles raise questions about whether negotiators can meet Trump’s criteria for pushing back the March 1 deadline for more than doubling tariffs on $200 billion of Chinese goods" - That is Aussie dollar negative and potentially U.S. dollar bullish. 

Looking ahead, markets will also watch the shutdown negotiations closely and for Asia today, RBA Assistant Gov Kent speaks at an FX breakfast in Melbourne.

AUD/USD levels

Analysts at Commerzbank explained that AUD/USD has based slightly ahead of our near term target at the 0.7022/15 October low and 50% retracement:

"Cloud support comes in at 0.7066. Rallies will need to regain the 55 day ma at 0.7154 to reassert upside pressure to the 200-day ma at 0.7275 and the 0.7295 January high. Near-term weakness is viewed as corrective only. Price action in January was exhaustive – the market charted a hammer (reversal). We have a TD perfected setup on the daily chart and a 13 count on the weekly chart. This suggests the down move ended at 0.6738."