Talking Points:
- AUD/USD higher on US-China trade war news, despite mixed data
- Positive follow-through unlikely due to dovish Reserve Bank of Australia
- Risk sentiment and RBA Governor Lowe’s speech in spotlight next
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The Australian Dollar appreciated against its US counterpart after news broke that the Chinese Vice Commerce Minister would visit the United States in late August for trade talks, mostly ignoring the release of local jobs data early into Thursday’s Asia Pacific trading session. The Australian economy lost 3.9k jobs, a sharp fall from both economists’ forecasts of 15.0k jobs and June’s 50.9k jobs. Meanwhile. July’s participation rate slightly decreased to 65.5% from both previous and expected values of 65.5%. Despite the downtick in the unemployment rate to 5.3%, compared to both prior and estimate reports at 5.4%, the economic data indicates that local economic activity may potentially slow as the labor force has diminished.
AUD/USD 5-Minute Chart
However, the risk-on unit’s upside momentum may lack follow-through due to the lack of lasting influence on the Reserve Bank of Australia’s policy implications. Although local economic data has recently started to outperform economists’ expectations, the Reserve Bank of Australia is unlikely to consider a rate hike soon as it has maintained that the 1.50% OCR is appropriate for sustainable growth and their inflation target. On the other hand, the US Federal Reserve has committed to at least two more rate hikes this year, possibly helping the greenback make gains.
Looking ahead, the sentiment-linked Aussie Dollar will closely eye risk trends. Fears of financial contagion from banks’ exposure to the Turkish Lira seem to have momentarily subsided as Qatar offered financial support to Turkey, helping the S&P 500 find a bottom and causing emerging markets to rally. In addition, trade war developments, especially the upcoming US-China trade talks, will continue to impact market sentiment. Furthermore, forward guidance from RBA Governor Phillip Lowe’s speech later today may cause further moves in the Australian Dollar.
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--- Written by Megha Torpunuri, DailyFX Research Team
