AUD/USD buyers recapture near-term bullish bias, but gains aren't convincing

AUD/USD H1 05-02-19

The aussie was weaker to start the day after poor retail sales data exacerbated worries that the RBA may dial back their neutral tone and move towards a more dovish tone in its monetary statement policy today. Price fell to a low of 0.7194 but failed to really test support from the 200-hour MA (blue line).

The RBA then maintained their stance for the most part and markets responded by bidding the aussie higher back above the 100-hour MA (red line). That indicates that buyers are back in near-term control but gains so far aren't really running anywhere just yet.

For the aussie to really convince of a move higher, price must get back above the 200-day MA @ 0.7280 in my view. Otherwise, I would expect this minor relief spike to be faded in the coming sessions.

Sure, the RBA hasn't yet indicated a shift to a more dovish stance just yet but the central bank has been known to be 'behind the curve' when it comes to adjusting monetary policy anyway. And if you really want to make an argument in that sense, they are currently nowhere near to hiking rates than they were last year so any bullish rhetoric is still sidelined for now.

The two things working for the aussie right now is that commodity prices continue to hold up well, helping to improve the country's terms of trade. That said, overall exports and imports are slowing down - much like other global economies - as indicated by trade balance data earlier. So, as much as this looks to be a positive factor there is still some negative caveat attached to it too.

The second thing is that US-China trade talks continue to appear to be more optimistic. This is probably the most important factor that could underpin the aussie against the greenback in the next few weeks. But even so, given the backdrop of how the Australian economy is performing, it's hard to imagine AUD/USD running anywhere near above 0.7500.

If anything, the more price moves closer to the 0.7500 handle, the more opportunistic short positions would become in my view. And one of the reasons for that is because yields spread between Australian and US bonds continue to favour the latter:

AUD/USD yields spread

The 10-year bond yields spread between the two countries continue to favour Treasuries by 47 bps, not far off from the 54 bps peak earlier this year and at the end of last year.