AUD/USD, Australian Dollar Analysis and Talking Points
- Modest Outperformance in the Australian Dollar
- Focus on RBA Hike and Possible China Tariff Announcement
RBA to Hike Another 50bps
Modest outperformance in the Australian Dollar this morning, however, this is merely a recovery from Friday’s heavy losses with AUD/USD up 0.6% to 0.6850. Looking ahead, the RBA is expected to raise the cash rate by another 50bps, which is slightly more than money market pricing of 40bps. In turn, a 50bps hike is likely to prompt a kneejerk move higher in the Australian Dollar.
US-China Trade War Review
Elsewhere, as this month marks four years since the beginning of the US-China trade war, focus will also be on trade policy amid the US Treasury’s July 5th deadline review of US tariffs on USD 34bln worth of China imports. This could provide a positive catalyst for the Chinese Yuan and by extension, the Australian Dollar (a China proxy) should the US decide to rescind some tariffs on Chinese goods. One of the motivations that US Treasury Secretary Yellen noted behind reducing tariffs was that it can ease the burden on American consumers and businesses that have had to pay for the tariffs. In turn, given the current backdrop of multi-decade high inflation that has squeezed incomes, this has prompted more scrutiny on Trump-era Chinese tariffs, particularly with the US mid-terms only a few months away.
That said, there have been some divisions within Biden’s administration with the President’s Trade Chief stating that China tariffs provide the US with significant leverage, adding that removing tariffs would do little for inflation in the short-run. Now while the comments from the President’s Trade Chief might be true, should we see reports that some China tariffs will be removed, I would expect to see the Australian Dollar move higher, while bond yields continue to extend lower.
AUD Levels to Watch
Idiosyncratic factors are likely to have a short-term effect on the Australian Dollar. Overall, general risk-on/risk-off sentiment is likely to dictate the fortunes of the currency. Topside resistance is situated at 0.6850-60, above which the 0.6900 psychological level is one to watch. Meanwhile, support is situated at the YTD low (0.6762).
| Change in | Longs | Shorts | OI |
| Daily | -11% | 16% | -5% |
| Weekly | -11% | 5% | -7% |
A Helpful Guide to Support and Resistance Trading
Chart in Focus: Germany Posts First Trade Deficit Since 1991
Source: Refinitiv
