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AUD/USD May Fall as Trade War Offsets RBA Lowe, China CPI

AUD/USD May Fall as Trade War Offsets RBA Lowe, China CPI

Daniel Dubrovsky, Strategist

AUD/USD, China CPI, RBA Talking Points

  • Australian Dollar looks past mixed Chinese CPI and PPI statistics
  • Prior boost on AUD from RBA may fade on trade wars down the road
  • IG Client Sentiment hints further AUD/USD upside correction next

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Australian Dollar Still Facing Uncertainties Post Mixed Chinese Inflation Data

The Australian Dollar may still be vulnerable after looking past a set of mixed Chinese inflation data. CPI clocked in higher at 2.8% y/y in July versus 2.7% anticipated. However, PPI contracted 0.3% versus -0.1% expected. That marked the quickest pace of wholesale deflation since August 2016 after yesterday, China’s trade surplus surprised to the upside and alluded to a more-supportive outcome for economic growth.

Elevated volatility was impacting the pro-risk currency ahead of the inflation report. Earlier in the session, the Aussie dived alongside S&P 500 futures as the White House held off on a decision to resume allowing companies to do business with China’s Huawei. This was in retaliation to Beijing preparing to halt importing agricultural goods from the world’s largest economy.

After, commentary from RBA Governor Philip Lowe cooled near-term easing bets as the Australian Dollar recovered. Mr Lowe mentioned that he sees the economy returning to trend growth in 2020 and the downsides of relying too much on monetary policy. Rate hikes appear to be not on the table as the Governor noted that this won’t be in consideration until they are comfortable that inflation is at target.

From here, a prominent fundamental downside risk for the AUD/USD is a further escalation in US-China trade tensions. Afterall, China is Australia’s largest trading partner and a slowdown in the former can have adverse knock-on effects on the latter. We have already seen two rate cuts from Australia’s central bank with markets pricing in about a 45% chance of another one in September.

AUD/USD 15-min Chart

AUD/USD May Fall as Trade War Offsets RBA Lowe, China CPI

Chart Created in TradingView

AUD/USD Technical Analysis

After finding support above the March 2009 low, the Australian Dollar appears to be heading towards near-term resistance. This is the former psychological barrier between 0.6827 and 0.6865 that on a couple of occasions, stemmed selling pressure in the AUD/USD. IG Client Sentiment is also offering bullish-contrarian trading bias, perhaps alluding to further corrective gains in the Aussie.

Join me on Wednesdays at 0:00 GMT as I guide you on how you can use IG Client Sentiment in trading strategies

AUD/USD Daily Chart

AUD/USD May Fall as Trade War Offsets RBA Lowe, China CPI

Chart Created in TradingView

Australian Dollar Trading Resources

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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