AUD/USD – Australian dollar dips as U.S hits China with new tariffs

AUD/USD has started the trading week with losses. Currently, the pair is trading at 0.6969, down 0.46% on the day. On the fundamentals front, Australian home loans disappointed with a decline of 2.5%, well below the estimate of 2.2%. This marked the fourth decline in five releases. The downward trend continued for Australian NAB business confidence, which fell to zero in March. There are no U.S. data releases on Monday. On Tuesday, Australia posts Westpac consumer sentiment and the wage price index.

The slowdown in the Chinese economy has damaged the Australian economy, so an escalation in the global does not bode well for the Australian dollar. The trade war between the U.S. and China escalated last week, as the U.S. slapped China with new tariffs on Friday. The move raised tariffs on some $200 billion in Chinese goods from 10% to 25%. China is yet to retaliate with counter tariffs on U.S. goods, but has allowed the Chinese yuan to fall to its lowest level in four months. A lower yuan makes Chinese exports more competitive and will help cushion the effect of the new U.S. tariffs.

Despite the dramatic rise in tariffs and the Chinese promise to retaliate, talks between the sides continue, with officials scheduled to meet in Beijing. The new tariffs do not apply to Chinese goods that left port prior to May 10, affording a 2-week window for negotiators before the tariffs take effect. The escalation in tensions has shelved a meeting between President Trump and Chinese President Xi, but the two leaders could meet at the G-20 summit in Japan in June.

The RBA released its quarterly policy statement on Thursday, sending a pessimistic message to the markets. The bank downgraded its GDP forecast to 2.75%, down from 3.0% in February. Inflation remains low, and the RBA rate statement, released on Tuesday, said that the labor market would have to improve before inflation could reach the bank’s target of 2.0%. The RBA has been dovish about the economic outlook, and thus surprised the markets when it did not lower the key interest rate last week. Despite the cloudy economic outlook, rate-setters are hopeful that the limping economy can rebound without the help of a rate cut.

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AUD/USD Fundamentals

Sunday (May 12)

• 21:30 Australian Home Loans. Estimate 2.2%. Actual -2.2%

Monday (May 13)

• 3:00 RBA Assistant Governor Debelle Speaks
• 21:30 Australian NAB Business Confidence

Tuesday (May 14)

• 8:30 Australian Westpac Consumer Sentiment
• 21:30 Australian Wage Price Index. Estimate 0.6%

*All release times are DST

* Key events are in bold

AUD/USD for Monday, May 13, 2019

Open: 0.7000 High: 0.7005 Low: 0.6967 Close: 0.6969

AUD/USD Technical

AUD/USD edged lower in the Asian session and is showing limited movement in European trade

• 0.6968 is under pressure in support
• 0.7085 is the next resistance line
• Current range: 0.6968 to 0.7085

Further levels in both directions:

• Below: 0.6968, 0.6825 and 0.6744
• Above: 0.7085, 0.7190, 0.7240, and 0.7315

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