AUD recovers as trade war risks settle down

Summary:

• Australian dollar is the strongest currency in early trading paring its recent losses to some extent
• Dow Jones (US30) extends its losing streak, Asian stocks drive higher
• Oil prices benefit from a higher than expected fall in inventories reported by API

We already wrote yesterday that the Australian dollar is one of the best barometer of risk sentiment across markets weighing it against bond yields (a positive relationship). While the AUD languished on Tuesday after US President Donald Trump had ordered to prepare a list of Chinese goods worth up to $200 billion, it’s basically the best major currency in early trading on Wednesday as trade war risks seem to have settle down a bit. During the Asian session we were offered no macroeconomic releases from Australia except the Westpac leading index falling 0.22% mom in May from a 0.19% mom rise a month earlier. Another noteworthy reading is the NZ current account printing a 182 million surplus while a figure of 50 billion had been forecast. On the other hand, the data did not so look when we compare it to GDP momentum as a deficit during the first three months of 2018 increased to 2.8% of GDP from 2.7%, such a rise had been anticipated though. Overall the data was a little impact on the NZ dollar which was under slight pressure following the GDT auction results bringing a 1.2% decline in prices.

Technically speaking the AUDUSD could look encouragingly from a buyers’ standpoint as it’s already tested a demand zone placed at around 0.7320. Once the price is capable of staying above this line, one could count on a rebound over the next couple of days. Source: xStation5

Muted trade war concerns have also buttressed Asian stocks being traded noticeably higher on the day. Among the best performers one may single out the Japanese NIKKEI (JAP225) along with the Australian S&P/ASX 200 (AUS200) being up 1.1% each. Indices in China are performing quite well too with the Hang Seng (CHNComp) being traded 0.9% higher. Having said that, even as we’re experiencing a healthier bounce today it does not mean all trade risks have already receded because they have not at all. Gloomy moods were yet seen on Wall Street, and this is especially true when it comes to the Dow Jones (US30). The US index dropped 1.15% extending its losing streak, the longest one since March last year. Moreover, since the beginning of the year the index is again in the red. Slightly improved spirits are also noticed in the US bond market as the 10Y yield has moved up from its low located close to 2.85% to 2.9% as of 6:55 am BST.

Oil prices are also bouncing back in the morning benefiting from a larger than expected draw in oil stocks reported by the American Petroleum Institute yesterday. It showed that oil stockpiles fell 3.02 million barrels while the consensus had looked for a 1.9 million barrels decrease. On the other hand, there was another notable gasoline stocks pick-up (2.11 million barrels) implying that US refineries may need less raw crude in the nearest future, and if so it could act to the detriment of further substantial oil stocks declines. Anyway, Brent is trading 0.45% while WTI is gaining as much as 0.75% as of 7:02 am BST.

Oil prices are slightly higher in the morning, but from a technical point of view there is not too much space for bulls to run. After a huge bearish candlestick drawn last Friday buyers have been unable to even test this level again. Having regard to the OPEC/non-OPEC meeting this Friday one may expect oil prices to wobble. Source: xStation5