“Contagion” was the word that permeated the market’s narrative for much of last week as concerns grew that Turkey’s meltdown and Erdogan’s combative stance would lead to broader emerging markets turmoil.
The Aussie dollar continued its aggressive slide, falling to levels last seen in January 2017 as the 72 US cent mark was challenged but remained intact. The back end of the week saw AUD losses paired as the USD reversed course resulting in an AUDUSD bounce of over 1.50% off the week’s lows.
Recovering all of the past week’s losses, the Aussie closed back above 73 US cents and 0.20% higher for the week.
The key local data event last week, Australian employment, was a mixed bag with the unemployment rate ticking down to 5.3%, offset by employment growth missing the mark, 3.9k decline vs an expected 15k new jobs created. Despite this miss, employment growth remains strong as wages growth starts to show signs of encouraging growth.
News that US-China would revive trade talks was the key driver of the improvement in risk sentiment over the latter stages of the week and will likely be the most important risk event for this week.
A Chinese delegation will be heading to Washington to hold talks on August 21 and 22. If these sessions lead to positive outcome,s risk appetite will continue to improve, allowing deeply-sold currencies like the Aussie dollar to continue their recovery. However, if the US and China continue to bump heads, we could see another leg down for our local currency as the US dollar resumes its march higher.