• AUD/JPY fails to overcome the US-China trade tussle, global recession fears.
  • Second-tier Aussie data, China’s Caixin Manufacturing PMI, trade headlines will direct near-term market sentiment.
  • The US traders are off for a Labor Day holiday.

Following its second consecutive month of declines, the AUD/JPY pair takes the rounds to 71.50 during initial Asian trading session on Monday.

The US and China continue to spread global trade pessimism and push major central banks towards further monetary easing amid downbeat data points at home. As a result, investors shift from riskier assets like equities and prefer safe-havens. In doing so, bond yields plummet to multi-year low with the latest two-year yields’ crossover of the 10-year counterpart from the US firming recessionary fears.

Recently released official purchasing managers’ index (PMI) data from China showed that the world’s largest industrial player keeps struggling due to its trade war with the global leader, i.e. the US. The August month Manufacturing PMI lagged behind 49.7 market consensus to 49.5, marking another figure in the contraction region, while Non-Manufacturing PMI grew past 53.6 forecasts to 53.8.

On the news front, China’s Financial Stability and Development Commission (FSDC), the State Council, recently promised more economic support to overcome the trade war’s negative impact when the US President Donald Trump has pushed the American tariffs to levels not seen since 1960. Adding downside pressure is the escalation of geopolitical tension emanating from Hong Kong.

Investors will now keep an eye over the upcoming second-tier data from Australia and China’s Caixin Manufacturing PMI for fresh impulse. AiG Performance of Manufacturing (Mfg) Index, TD Securities Inflation and ANZ Job Advertisement for the August month join second quarter (Q2) Company Gross Operating Profits from Australian economic calendar whereas China’s August month Caixin Manufacturing PMI will decorate Chinese data-line.

Technical Analysis

A sustained break below 71.00 becomes necessary for sellers to aim for August 07 low near 70.70 while 70.00 could check bears afterward. On the contrary, a falling trend-line since August 13, at 71.73, can keep the pair under pressure ahead of fueling it to a month-old descending resistance-line, at 72.35 now.

  • AUD/USD opens Asia lower following Chinese data that disappointed.
  • Likely scenario is a continued decline, particularly if the pair loses the 0.6700 level.

On the day that both US and Chinese tariffs kick in as a reminded of the recently escalated trade war, AUD/USD has started the week on the back foot. AUD/USD was opening in early Asia -0.14% to a low of 0.6723 from a high of 0.6726 following a spike in USD/CNH and mixed official PMIs from over the weekend. Friday's US session was good two-way business for AUD/USD traders with the price rising from 0.6722 to a high of 0.6740 and back again before another burst to the upside later in the day and into month-end.

Over the weekend, Chinese data disappointed in the official Manufacturing PMI arriving at 49.5 vs expected 49.6 while Services bat arriving at 53.8 vs 53.7. The Aussie is softer on the data considering this is showing that the manufacturing sector is in contraction for the fourth consecutive month due to the trade wars and subsequent slower demand. Other factors at play are the situation in Hong Kong while protests turned violent again over the weekend, outright strengthen the Dolar, piercing the 99 handle for the first time since 2017 and the Reserve Bank of Australia (RBA) in focus for this week which will be followed by Australian Gross Domestic Produce for the second quarter.

RBA to hold but GDP could be a game-changer

The RBA is expected to keep the cash rate on hold at 1%. "We expect the Bank to reiterate it is in ‘wait and see’ mode as it assesses the impact of tax cuts, rate cuts and easing in macro-prudential policy since May. A soft GDP the following day could see the market forecasters bring forward a RBA cut to Oct," analysts at TD Securities explained.

AUD/USD levels

Valeria Bednark, the Chief analyst at FXStree, explained that the AUD/USD pair is in bearish territory according to the daily chart:

"Technical indicators have recovered modestly within familiar levels, holding below their midlines. In the 4 hours chart, the pair offers a neutral-to-bearish stance, as it remains below all of its moving averages, while technical indicators have recovered modestly within negative levels, lacking clear directional strength. The pair could correct higher on a break above 0.6750, the immediate resistance, but the most likely scenario is a continued decline, particularly if the pair loses the 0.6700 level."

  • NZD/USD remains on the back foot around multi-year low as US-China trade war, sluggish data at home drag Antipodeans.
  • China’s official PMI numbers fail to please commodity buyers.
  • New Zealand’s Terms of Trade Index, China’s Caixin Manufacturing PMI decorate economic calendar when the US markets are off for the Labor Day.

Continuation of the US-China trade war and the presence of downbeat data at home and off-shore keep the NZD/USD pair under pressure while taking rounds to 0.6800 at the week-start trading of Monday’s Asian session.

The US tariffs on Chinese goods worth of $110 billion took place on September 01 even if China canceled previously announced tariffs to be levied this month while waiting for the trade talks. Chinese state media keep criticizing the US with the weekend news report from Xinhua giving lessons on the “US’ futile war”, as it said.

On the other hand, China’s official purchasing managers’ index (PMI) data for August, released over the weekend, showed little sign of progress. The headline Manufacturing PMI remained in the contraction region with 49.5 mark versus 49.7 expected and prior whereas Non-Manufacturing PMI crossed 53.6 forecast to 53.8.

Although US markets are closed due to Labor Day, trade headlines can keep investors busy at the month-start. On the economic calendar, New Zealand’s (NZ) second quarter (Q2) Terms of Trade Index and China’s Caixin Manufacturing PMI for August will be on the traders’ radar.

While NZ Terms’ of Trade Index isn’t expected to deviate from 1% previous readouts during the second quarter, China’s private manufacturing gauge could weaken a bit to 49.8 from 49.9.

Given the consecutive six weeks of decline towards late-2015 lows, the positive surprise from data can trigger month-start pullback especially when the US traders are away.

Technical Analysis

September 2015 lows surrounding 0.6236/43 seem immediate strong support ahead of highlighting 0.6200 round-figure and the year 2015 low near 0.6085. Meanwhile, 0.6340 and August 07 bottom around 0.6380 can keep exerting near-term downside pressure.

  • Tariffs went into effect early Sunday on $112 billion of Chinese imports.
  • Tariff increase on US goods next round goes into effect today on $75B in goods in 2 batches, second on Dec 15th.

President Trump says meeting with China on trade negotiations still on for September. Trump told reporters Sunday on the White House South Lawn after returning from Camp David that the US is talking to China, the meetings in September, "that hasn’t changed.”

Tariffs went into effect early Sunday on $112 billion of Chinese imports. The 15% tariffs cover a wide range of consumer goods, including everything from certain types of clothing and shoes to some consumer electronics like cameras and desktop computers.

Meanwhile, China Customs Tariff Commission of the State Council clarified that tariff increase on US goods next round goes into effect today on $75B in goods in 2 batches, second on Dec 15th.

Here is what you need to know on Monday, September 2nd:

– EUR/USD below 1.1000, despite US data, failed to impress. Comments from ECB’s top official Olli Rehn smashed the EUR as opposed to what Knot said earlier in the week, he said that the central bank should come up with an “impactful and significant” stimulus package in its September meeting, that should exceed investor’s expectations.

– A new round of U.S. tariffs on some Chinese goods is scheduled to take effect on Sunday. Risk-off could take over.

– Over the weekend, Michael Gove, the UK minister in charge of planning for no-deal, insisted that there would be no food shortages in the UK in the case of a hard Brexit, but refused to rule out the possibility that the government could ignore any law passed by parliament to stop a no-deal Brexit, outraging MPs from both sides. Brexit jitters likely to keep Sterling pressured.

– China released the August NBS Manufacturing PMI which fell to 49.5 down from 49.7 previously, and the Non-Manufacturing PMI which improved to 53.8 from 53.7 previously, beating the market’s expectations. China will publish the Caixin Manufacturing PMI, foreseen at 49.8 from 49.9.

– Oil prices came under pressure after the Russian Energy Minister Alexander Novak said that the country’s oil output cuts in August would be slightly below those agreed with OPEC+.

– Gold eased on a better market mood, held above 1,500 as fears about a global economic downturn prevail in the background.

– Cryptocurrencies remained depressed throughout the weekend.