By guest contributor Stuart Talman, Director of Australian Sales, XE.com.
The big question coming into last week was whether the Aussie dollar would continue its slide and take out the all-important 70 US cent level.
Despite stronger-than-expected GDP growth (the week prior to last) suggesting the Australian economy is on a somewhat solid footing, currency direction has primarily been driven by trade war headlines and Trump turning up the heat on China by signalling that he would announce further tariffs.
Market participants waited for the seemingly inevitable to occur, however, last week passed with no news on the expected execution of $200bn of tariffs by the US. The Aussie spent much of the week treading water between 0.7090 and 7130, before pushing higher on news that the Trump administration had sent an invitation to China to begin a new round of trade talks.
Investors remained sceptical that this would lead to any meaningful outcomes given that these talks have typically broken down – the most recent US trip by a Chinese trade delegation proving to be a non-event. Risk sentiment, however, did improve markedly as the news broke sending AUDUSD to weekly highs at 0.7230, rallying some 2% off the weeks’ lows.
Along with the positive news flow re-trade talks, risk sentiment was also boosted by news that the Turkish central bank lifted rates by 625 points (6.25%) which helped boost most emerging market currencies in addition to the euro.
Over recent weeks, emerging market stress and a weaker euro have also contributed to AUDUSD sitting at two-and-a-half-year lows. If we continue to see good news regarding both trade and emerging markets, this should ensure that levels below 70 US cents remain out of play for the time being with the prospect of further gains and a move back towards 75 US cents.