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XTB TRADEBEAT

Equities rise, AUD gains on the data

Summary:

  • Equity markets on the rise even as trade tensions rise
  • AUD gains on solid data, key events in the week ahead for the Aussie
  • AUDUSD could see gains technically 

Last week was dominated by a returning Trade Wars story as president Trump announced tariffs on steel and aluminium imports from Canada, EU and Mexico. Although it’s not a new story these countries have been exempted initially and investors hoped that the issue will go away as new deals are worked out. So a decision to slap the duties was a negative surprise to be sure. On top of that China threatened to withdraw from trade talks with the US after Trump administration announced that a list of the Chinese imports into the US worth $50 bilion will be announced on 14 July and 25% tariffs will be levied on it. 

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Despite trade concerns US500 tries to move past the 2740 resistance. Source: xStation5 

Expect those trade fights to continue this week as the G7 meeting (Friday) in Canada nears. Canada is especially unhappy with Trump’s tactics as the country is dependent on exports to the US and tariffs on steel and aluminium will be relatively painful for the country, unlike with the EU where it’s just 2% of output. Interestingly markets are not too much concerned. Indeed when we look at the US500 there was a major red candle last Thursday when the tariffs story returned but it was countered on Friday when a solid data from the US (payrolls plus the ISM) was released. The index seats just below the level of resistance and could be ready to march higher if it’s broken today, especially as some US indices (notably US100) have already stormed higher. 

On the FX market we see the AUD being a clear winner this morning as there’s a general tendency to trade away from the US dollar and the Japanese yen. The Aussie is rising for some good reasons as the data package has been really solid out there:

  • Q1 inventories increased by 0.7% q/q, well above the consensus of 0% - inventories are just inventories but it bodes well for the GDP release later this week
  • Q1 company profits surged by 5.9% q/q, consensus was 3%
  • Retail sales advanced by 0.4% m/m, beating the consensus (0.3%) slightly - not a major beat but still counts after months of weak sales
  • Melbourne Institute Inflation gauge was 2.1% y/y in May - consensus was 2%

So overall a fairly solid package, boding well for major events that we have later this week - the RBA decision and statement (Tuesday, Asian session) and the GDP release on Wednesday. 

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AUDUSD could be eyeing higher as the pair is boosted by solid domestic data. Source: xStation5 

Looking at the AUDUSD the was bottoming out for the past couple of weeks and it could be ready to move higher if today’s impulse persists. Although there was no rock-solid support we can see a similar pattern holding last year when it led to a major rally. Bulls could be looking for 0.7740 as a resistance level this time around.  

 

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