By guest contributor Stuart Talman, Director of Australian Sales, XE.com.
The Aussie dollar continued its basing pattern through last week, ultimately closing the week marginally lower and still leaving traders wondering when and in what direction the next significant move will occur.
Still holding above 73 US cents, despite a number of headwinds, AUDUSD was on the back foot for most of the week as news headlines confirmed the US administration would proceed (as early as next month) with implementing tariffs on another $200 billion in Chinese imports. As the Aussie dollar collapsed from month highs around the 0.7480 mark back to 0.7360 and markets awaited a Chinese response and (an expected) US counter-response, a further escalation in trade tensions and AUDUSD retreating to fresh lows below 73 US cents seemed a foregone conclusion.
What did happen took many by surprise as both the US and China indicated they were prepared to resume talks – this following discussion stalling in June and a further souring of relations.
The result for the remainder of the week was a significant improvement in global risk sentiment pushing equity markets higher. The Australian dollar carved out a similar path for a third consecutive week – retreating for most of the week, then pairing losses to climb off weekly lows by some 1%.
Despite price action being characterised by these positive conclusions to each of the past three weeks’ trade and the Aussie not yet willing to test sub-0.7300 levels, headwinds remain constant and many. Monetary policy divergence (FED hiking, RBA neutral), soft commodity prices, emerging markets turmoil, a cooling Chinese economy and a locally low wages growth/high household debt/soft consumer spending dynamic all serving to put a significant weight on the currency pair.