Aussie rises on higher risk appetite and RBA’s rate decision

Summary:

• Comments that China demands from Trump to remove tariffs imposed in September have lifted risk sentiment (it seems rather unlikely Trump refuses Chinese demands and re-escalates the ongoing trade war again)
• Reserve Bank of Australia leaves rates on hold and signals that the latest cuts have supported employment and income growth in
• Australia Australian dollar climbs 0.3% against the US dollar and is the best performing major currency this morning

The Australian dollar is by far leading the gains compared to its G10 peers largely due to two factors. The first one concerns the ongoing trade spat between the United States and China. Namely, according to Politico China is demanding that Trump eliminates a round of duties scheduled to go into effect in mid-December and also lifts tariffs imposed in September. Let us recall that Beijing was slapped with a 15% tariff rate on roughly $112 billion worth of Chinese goods at the beginning of September. Now, China wants Washington to remove these duties along with refraining from imposing an additional 15% rate on $160 billion worth of goods next month. As the newspaper reports, China is reportedly very eager to have a 25% tariff rate removed, or at least cut in half, on an additional $250 billion worth of goods. Nevertheless, it is not anticipated to be included in a deal between the two feuding countries. 

Secondly, the Reserve Bank of Australia left interest rates unchanged, in line with expectations, and added one a bit cryptic paragraph in its statement. It says: “The easing of monetary policy since June is supporting employment and income growth in Australia and a return of inflation to the medium-term target range." This could imply that the RBA is quite satisfied with the effects of the previous rate reductions it delivered. If so, it could also signal the Australian central bank may be unwilling to keep cutting rates in the near-term. On top of that, the RBA mainly underlined downside risks from abroad and kept its pledge to ease policy further if needed to support sustainable growth. To sum up, we reckon that these two factors are supportive of the Aussie this morning.

A sequence of “lower highs and lower lows” has been broken of late. Does it foretell upside for the Aussie? Source: xStation5