Dicken's tale of two cities starts with the famous lines, 'It was the best of times, it was the worst of times'. The novel itself was set around the French revolution, and in a way we have a similar sentiment today, it is the best of times and the worst of times, for two opposing currencies set around political upheaval. It isn't a revolution in government, rather a revolution in trade. Or, at least trade deals. I am talking, of course about NAFTA and the US CHINA trade war.
US CHINA Trade war
The Nikkei is down 0.79% as I write and the market is jittery as all the Asian equities are down with their worst week for months. The market is widely expecting Donald Trump to announce significant $200bln worth of tariffs on China. As, we already know by now if you are a regular FX follower, what's bad for china is bad for the AUD. This is the largest impact for the AUD at the moment, as despited having some good data in the week (GDP, and Trade balance), all rallies have been sold. There are fears that households will feel the pressure of the growing debt, the raising of mortgage rates , slow inflation, and wages staying low all have led to AUD rallies being sold. If Trump gets a tweeting and calling down fire and tariffs on China, the AUD is going to feel the pain.
A trade war with Japan now seems to be on the cards for Donald Trump. I mean, why stop when you are on a roll? This is all adding to more risk off tones and an excellent chart to focus in today has already been flagged up by Justin. See here for his helpful and informative post, this is on the AUD/JPY.
Will they agree today? Won't they? Basically, they will. Trump told us last night, via a rally, that he was confident that he would get a deal done with Canada. I mean if he has done a deal with Mexico, which he wanted to build a wall across their entire border, Canada should be agreed for sure. If not today, then soon. There is some reports out that NAFTA won't be done today. So, there could be some more posturing, but the deal should certainly be completed.
Things are looking good for Canada. See here for my earlier post. The October rate hike is on the cards and BOC's Wilkins came out even saying that they debated removing the 'gradual rate hikes' from the latest BOC statement this week. Very bullish in print, and the market took it that way, notwithstanding Adam's sanguine comments. See it here.
So, you put this all together, AUD/CAD short looks good. Bad news on trade war for Australia vs good domestic outlook and NAFTA deal to be done for Canada. Entries at pivot points and pull backs to moving averages are the orders of the day.