With the Aussie dollar currently trading at 73 US cents, you would be forgiven for thinking our currency is doing well.
Indeed from the start of November it has been climbing upwards, despite recent volatility:
But there are clouds on the horizon if the US and China can’t broker some form of trade deal, or least a trade truce.
G20 could mark sharp downward slide for Aussie dollar
The latest news out of the South China Morning Post has indicated that Peter Navarro will be attending the G20 summit in Buenos Aires, scheduled to take place tomorrow.
Peter Navarro is Trump’s trade policy adviser, and a harsh critic of China’s trade policies.
Initially the South China Morning Post had suggested that he would not be in attendance.
That being said, Larry Kudlow, Trump’s economic adviser has said that the administration sees a ‘good possibility that a deal can be made’.
So there are mixed signals on the trade war front, perhaps explaining Aussie dollar volatility over the past 24 hours.
Weaker Chinese PMI data impacting RBA rates and trader sentiment
Chinese PMI data is out today, with manufacturing declining to 50.0 and service based activity dropping from 53.9 to 53.4. Both of these numbers were lower than expectations.
With an economy so inextricably linked with China, the RBA’s recent outlook has indicated that once again, it will keep historically low rates where they are.
We discuss the importance of PMI data here.
An additional factor to consider is data out of the IG Client Sentiment Report, which shows that the gap between traders that are net-long versus net short on the Aussie dollar is starting to close quickly.
Last week 58.5% of AUD/USD traders were net-long, and as of today only 52.9% of traders hold this position:
With more traders beginning to hedge their bets in the lead-up to the G20, a significant downward movement could be on the cards if trade tensions ramp up.
No doubt, there is a lot at stake at the G20 talks.
For Markets & Money