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The Australian dollar is under pressure again after the US announced fresh Tariffs on China

Market Analysis /
Greg McKenna / 11 Jul 2018
  • The Australian dollar is testing support around 0.7415 after trading up to a high of ~0.7483 overnight. That collapse came after reports surfaced that the US Administration was readying another $200 billion in tariffs on Chinese goods
  • Reports have proved correct and fears are now strongly held this escalation will be met with a Chinese response and possibly counter-response from the United States 
  • That puts the AUDUSD and AUDJPY as available and liquid proxies for all the worst fears about the impact of the Trade War. A break of 0.7393 could open the floodgates to retest lows. 

As I highlighted yesterday, timeframes are important. 

The rally we saw to the highs of the last couple of days was against the stronger weekly downtrend. Certainly, it had legs while the USD was, and may again be, under pressure. But as I have highlighted often the longer term negatives remain stacked against the Australian dollar. 

So, it didn't take much for the sellers to again grab the stick and push AUDUSD and AUDJPY lower pretty much from the moment the Bloomberg story report new tariffs were coming hit traders consciousness. You can see that in this 15-minute AUDJPY chart which fell from ~83.15 to the current level of 82.21. 

81.50/60 seems a reasonable target now for AUDJPY as the Yen gains from the safe haven bid and as the Aussie suffers as the big deep and liquid proxy available to short the global economy, emerging markets, and commodity prices – all of which are likely to come under pressure from an escalation.

That most forecasters are calling the Aussie lower already will only add to the downdraft if things kick off. 

To reiterate before I get to the chart, the negatives stacking up against the Aussie dollar, things like the trouble in emerging markets, an apparent slowing in the Chinese economy, domestic headwinds for households and potentially business (watch the NAB survey today), interest rate differentials, commodity prices, the performance of metals and mining shares versus the overall market, and the still unresolved trade war between the US and China. 

Markets remain too sanguine for my liking. And while I admit there may be some USD selling as a result of this escalation it is instructive that the Euro is lower this morning not higher as it has mostly been when the trade tensions have resurfaced. 

Here's the 4 hour AUDUSD chart showing a break of the short term uptrend and the test of the garden variety 38.2% retracement level right now. A  break of 0.7393 would be a sign the higher time frame downtrend has resumed.

Click on me, I'll expand
Click on me, I'll expand

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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