AUDUSD Weekly Commentary

Xe Corporate APAC

April 14, 20194 min read

Author: Stuart Talman

The Aussie dollar finished last week at its highest level since late February, sitting just below key resistance at 0.7200 - a level that has proven to be an impenetrable wall over the past few months.

Finishing the week just over 1% higher, price action whipsawed through the second half of the week, ultimately influenced by an improvement in risk appetite. Investors have found comfort in buying equities through 2019 and with US equity markets ending the week on a strong footing, the Aussie dollar was also in favour.

And whilst there has been much focus on the possibility of a US recession, ongoing trade tensions (US + EU tensions escalating this past week) and still uncertainty over both a US - China trade deal and Brexit progress, equity markets push higher and the Aussie dollar remains above 70 US cents.

Global markets have gained comfort from the fact that the Federal Reserve will refrain from raising rates further - a key development that lead to a halt to the deteriorating outlook that gripped markets at the start of the year.

Meanwhile locally, despite investors expectations for one or two rate cuts this year, the RBA remains steadfastly neutral.

In a speech on Wednesday, deputy RBA governor Debelle commented that the central bank awaits further confirmation that financial conditions warrant a shift to easing rates.

Whilst the last reading on GDP growth was poor, the Australian labour market remains robust - therefore providing conflicting signals regarding the health and outlook of the Australian economy.

It will likely prove to be a couple of key (shortened) weeks for the Australian dollar as employment data is released Thursday and Inflation data (CPI) released the following Wednesday.

Ongoing jobs growth strength and a strong CPI reading would further cast doubts on markets strong conviction that the RBA will cut. Debelle's speech last week was widely anticipated to be a platform for the RBA to align with the markets expectations - flagging upcoming rate cuts......this didn't occur. Aussie dollar bulls will smash through 72 US cent resistance should rate cut expectations be dialed back further.

Another factor that may support the AUDUSD this week has been the recent run of improving data out of China. Trade data out of China last week highlighted a sharp pick up in Chinese exports leading to a much larger than expected trade surplus. Investors interpreted this as positive reinforcement that the Chinese growth outlook is no longer deteriorating as a mix of both progress on US - China trade negotiations and stimulus from the Chinese authorities steadies what had been a bumpy ride.

It's a huge week ahead for economic data releases out of China with retail sales, industrial production and most importantly - GDP numbers all due on Wednesday.

In a short week with light trading volumes due to the Easter holidays - we may finally see Aussie dollar bulls push price action through important levels at 0.7200 and higher at 0.7220.

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