Aussie dollar holds above 0.64 cents as markets eye RBA decision

The market took a decent shot at the downside overnight and failed to make any progress. Now we have a market that is likely bit short AUD (AUDJPY) going into RBA, and there is a risk of a squeeze higher. Oil prices have stabilised overnight, creating more of a feel-good story across the commodity landscape and putting a copper plank under AUDUSD 64 level while buttressing sentiment.

Although the US-China political imbroglio is brewing, the market is kicking the can down the road for a resumption in a trade war. With corporate America already in the throes of an economic collapse in demand, it seems unlikely that US-China tensions will escalate from threats to higher tariffs in the near term.

While risk traders are struggling to pivot full out bear as its challenging to be a seething pessimist when lockdowns are lifting; hence the AUD sell-off ebbed.

US Dollar

On the surface, the USD seems destined not to crack, not because it is stable but because there remain few alternatives. Once investors find a non-US investment alternative that is attractive, then perhaps the worm turns on the Greenback. In the meantime, it is going to be a grind being short US dollars but not extremely attractive to own them either with little carry to show.

All the principal components are in place for the eventual US dollar selloff; still, we need the first glint of a decisive turn in the Eurozone data or the *TINA index to roll over. Sure, Buffett was stopped out of the airline’s trades, and it is alarming if you were bottom dipping hoping for him to double down. However, that is more an industry-specific concern and not so bearish for the broader market and will not ring in a more broad-based USD selloff.

It was a reasonably quiet session on Monday in AUD and JPY blocs with risk failing to sell off further. Only once the market starts to get more embroiled in the trade war headlines like they were in the year before the virus outbreak, then the AUDJPY and EURAUD would have an excellent way to reprice lower.

Euro is weaker

The EUR is weaker this morning as it reversed last week’s month-end squeeze, which lingered. But the Euro finally succumbed to recent correlation with risk sentiment.

The immediate focus is the German court ruling on the ECB QE program, an adverse judgment might be an outside chance, but hard to ignore the risk. So topside could be limited in the pair in Asia today.

Will Abe follow through with Japanisation?

The market remains focused to see if Abe follows through with the U-turn in globalisation as Japanisation will be suitable for the Yen, especially as US rates present little obstacle with minuscule negative carry.

The Chinese Yuan

The USD has opened stronger as geopolitical tensions continue to hang like a dark cloud over the Yuan. Smaller spats are emerging between China and Australia, China, and Germany, and even China and Japan, which suggest China will remain in the geo spotlight and not in a pleasant way.

Also, the weaker China PMI data running below trend with China’s primary export consumption economies not consuming it does not bode well for China’s recovery. And when factoring in the less globalized world during the initial phase of the post-pandemic recovery as economies internalize, it is also providing poor optics for the Yuan bulls—and certainly not providing a suitable non-US dollar-denominated investment backdrop.

But probably not worth chasing thigs higher either, as it is not in the PBoC best interest to let the Yuan sag to prevent the market from stoking the trade war fears.

The Malaysian Ringgit

The Ringgit should trade on more stable footing supported by rising Brent crude oil prices, which surged 4.4 % on the day, which should also boost oil constituents on the KLCI following stellar gains on Exxon Mobile and Chevron Oil in the US stocks markets.

However, regional optimism remains slightly tarnished by the coronavirus blame-game and a looming US presidential election, which could prove to be s a toxic recipe for US-China relations. As politics, trade, technology, and capital markets are the critical fissure points again.

Currency markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp