The Australian dollar paired with the US currency last week jumped to multi-week highs, trying to gain a foothold in the 72nd figure. The reason for this breakthrough was the strong data on the growth of the trade surplus in Australia against the background of the growth dynamics of the manufacturing sector in China. Today, AUD / USD traders also demonstrate bullish sentiment, but now, long positions look somewhat risky due to the November meeting of the RBA, which will take place tomorrow.
First, it should be noted that the north dash AUD / USD was fully justified. Seasonally adjusted, the surplus of the Australian trade balance increased to three billion dollars. This result almost doubled the predicted values and surprised traders a lot like the last time such high figures were reached more than a year and a half ago, in February last year. If we talk about the whole tracked period, the September surplus became the third largest in history. Moreover, the surplus level for August was also revised upwards, and quite significantly, to $ 2.34 billion from $ 1.6 billion. Exports of the country broke all records, reaching 37 billion, amid weakening imports (the country began to import less industrial equipment, cars, and airplanes).
In addition, the Chinese PMI index for the manufacturing sector from Markit was released last week. Of course, there are no records here, of course. However, the published release showed that China's manufacturing sector is minimal, but nevertheless it grew in October after the suspension of growth in September. The indicator reached the level of 50.1 with the forecast of 49.9, while the level of 50 is the "red line" demarcating the zones of expansion or decline in production. The official PMI indicator for the manufacturing sector, which was released a few days earlier, also showed that the indicator remains above the key 50th mark. These figures somewhat leveled panic about the state of the Chinese economy.
However, the Australian dollar rose in price not only due to the above factors. Last week, rumors about a possible truce in the US-China trade war began to be actively discussed on the market. On Friday, Donald Trump said that the American side had "very good discussions" with Beijing, and, apparently, the negotiators are approaching a big deal. It is worth recalling here that the leaders of the People's Republic of China and the United States will meet at the G-20 summit to be held in Argentina from November 30 to December 1.
Despite such an optimistic attitude of Trump, rumors around the upcoming meeting are contradictory. According to one information, the parties are really preparing a deal, and, according to other sources, the leaders will only enter into a declarative agreement, the details of which will then be negotiated. But in any case, there is now a process of de-escalation of the conflict, and this fact provides background support for the Australian dollar.
And yet, contrary to these fundamental factors, long positions in the currency pair AUD / USD look unreliable. At its meeting, the Reserve Bank of Australia may focus on other circumstances that are not so rosy for "Aussie". The continuing record debt of households amid weak growth in wages continues to slow down consumption and has a significant pressure on inflation. Moreover, the Australian consumer price index was published last week, which disappointed investors.
Thus, in quarterly terms, the indicator remained at the level of 0.4% (third quarter in a row), and on an annualized basis fell to 1.9% after rising to 2.1% in the second quarter. Core inflation also showed negative dynamics, reflecting a weak link in the system of the Australian economy. Let me remind you that one of the members of the RBA last year even offered to consider the option of reducing the interest rate in response to negative inflationary processes.
Although today, the issue of monetary policy easing is not on the agenda, many experts have revised their forecasts regarding its prospects. Thus, most of the surveyed analysts expressed the opinion that the RBA will start raising rates only at the beginning of 2020, and not at the end of the next (as previously assumed). If members of the Australian regulator hint at a similar scenario tomorrow, the pair AUD / USD will not be able to keep the price high and will resume the southern movement.
Thus, the position of the RBA tomorrow may disappoint traders if the regulator focuses its attention on the dynamics of inflation, and not on other macroeconomic or geopolitical factors. In this case, the pair AUD / USD can drop at least to the mark of 0.7140. At this price point, the Tenkan-sen line coincides with Kijun-sen on the daily chart, forming a fairly powerful level of support.
