AUD surges to near 3-month high on trade war optimism – November 19, 2018

The Australian dollar has reversed early session weakness to leap through technical resistance and trade above 0.7300 to the highest level since late-August.  The moves came after US President Donald Trump said he is optimistic about resolving the trade war with China ahead of his meeting with Chinese President Xi Jinping at the G20 meeting this month.  Whilst Trump was positive with his remarks, he also was quoted as saying “hopefully, we will make a deal, and if we don’t, we are doing very well just the way it is right now,” which suggests the onus is on China to meet Trump’s demands, or else the current tariffs will remain in place.

For now though the comments were enough to send the AUD surging higher, where it leapt from a session low of 0.7250 to touch 0.7337, before closing the week at 0.7330.  It was a good week for the Aussie, building off momentum generated from the US mid-terms and local employment data released by the ABS which showed continued growth in jobs added and the unemployment rate held steady at 5.00%.

This week the economic calendar is quite thin, with the RBA monetary policy meeting minutes and US core durable goods orders the highlights.  This could be the catalyst for a week of consolidation for the Aussie dollar in the absence of any major announcements.  Looking at the charts, there appears to be resistance at 0.7360 and 0.7380, representing trading highs in August.  If there is a break back below 0.7300, 0.7250 is the next key level of support.

The Australian dollar has also garnered support against the British pound, where on Friday it reached a 3-month high.  Political woes surrounding the UK’s exit from the European Union are weighing heavily on the pound, with PM Teresa May under extreme pressure from within her own party, with many of her colleagues criticising the handling of the divorce negotiations and there are rumours that a leadership challenge could be launched at any moment.

Economically speaking the sterling probably should be trading higher than it currently is, however all of this political uncertainty is preventing any sustained move higher.  Expect Brexit to dominate the headlines this week too whilst Teresa May tries to keep her party aligned and progress Brexit proceedings.

AUD/GBP closed the week at 0.5708, now up 6.5% from the October 11 low.  There appears to be resistance at 0.5750 followed by 0.5775, representing trading highs in June and August respectively.  Support starts at 0.5650 but given the wide trading range seen in recent time, it wouldn’t surprise if we see further moves beyond 0.5650 if the UK parliament can approve the Brexit divorce bill.

James King
Head of FX Dealing, AFEX

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