By guest contributor Stuart Talman, Director of Australian Sales, XE.com.
The Aussie dollar spent most of last week on the back foot once again carving out fresh 13 month lows against ongoing uncertainty over the next US trade move.
Also weighing on AUDUSD was the decision by the People’s Bank of China to set a higher USDCNY daily rate, leading to a devaluing of the Yuan sending the currency to year-to-date lows. The action was a vote of no confidence from the Chinese authorities – increasing the likelihood that the US will impose proposed tariffs.
With the meltdown in both the Yuan and Chinese equity markets, this fed through into emerging markets, further adding to a climate of global financial markets battling deteriorating risk sentiment.
A proxy for Chinese economic growth, the Aussie spent much of the past week under pressure, but like the week prior, staged a recovery in the final stages to close around 0.50% lower for the week. The catalyst for Friday’s bounce was driven by developments out of the Eurozone as news that European Union leaders had reached a deal to tackle migration issues. A positive development for Eurozone stability, the EUR raced higher against the greenback during Fridays’ local trade.
Putting a halt to the recent demand for US dollars, the softer greenback leads to the Aussie clawing back through 74 US cents.
An action-packed week ahead should lead to heightened volatility in global markets.
The key date this week being 6 July – looming as the deadline for US tariffs to come into effect. Markets will be holding their breath that the world’s two largest economies can find common ground through the week and avoid igniting an all-out trade war.
With weakness in household spending an ongoing concern for the Australian economy, Wednesday’s retail sales number will be closely watched as recent releases have provided a positive surprise.