AUD/USD trends back below 200-hour moving average after strong sell-off

• AUD/USD's upside correction meets heavy supply as US dollar firms on solid Retail Sales data.
• US/Sino trade deal will bring some near-term stability to China’s trade outlook, potentially support AUD as a proxy. 
• Chinese commitments (on trade) seem very ambitious, could be problematic down the line. 
• Attention now turns to Aussie key economic data ahead of RBA Feb 4th meeting. 

AUD/USD has dropped back from the corrective highs of 0.6933 and lost the 0.69 handle today, printing a low of 0.6887 in recent trade, piercing the 200-hour moving average. The US dollar has firmed across the board on the back of solid Retail Sales data, bucking a negative run of domestic data of late. Retail Sales in the United States increased by 0.3% on a monthly basis in December, bang in line with market expectation and also matched the previous month’s upwardly revised reading.

Sino/US trade deal a step in the right direction, but ...

Yesterday, the ‘Phase-1’ trade agreement between the US and China was finally signed. The signing of the deal will bring some near-term stability to China’s trade outlook and financial markets. However, there are concerns that the Chinese have more obligations than the US and it is not a balanced agreement, potentially kicking up problems down the line. 

"The eight-chapter agreement outlines many pragmatic action points in several areas, while others remain vague. At the same time, issues such as 5G technology, cybersecurity and SOE subsidies have not been included in the current agreement and could be topics for further negotiations, if there are any," analysts at ANZ Bank argued. 

There are significant pledges by China and commitments (on trade) that seem very ambitious. "Above all, we argue that this agreement has created a temporary but unstable equilibrium; the deal could still collapse," analysts at Rabobank argued. 

RBA back in focus

Nevertheless, the CNY is higher and probably has some way to go yet should the consensus favour a positive outlook for the US and Chinese relation. Subsequently, what is positive for the yuan tends to be positive for the Aussie as well. However, the trade deal won’t help Australia recover from disastrous bushfires. The key focus will be with the Reserve Bank of Australia on the 4th Feb and the key domestic data leading up to it with jobs and the consumer a prime focus. Pricing for an RBA rate cut in Feb has edged back above 50%.

AUD/USD levels