China could offer more pro-growth measures in its annual government meeting, long Aussie.
Yuan’s rally means regional sentiment on risk assets will improve
With China rediscovering its appetite for stimulus, the Federal Reserve promising to be patient on rates and the optimism surrounding trade talks, Aussie dollar have a good reason to start shaking off February’s lethargy.
Investors looking for the next risk-on trigger will be watching China’s annual National People’s Congress starting Tuesday, as the country’s growth target is likely to signal how much the economy has been affected by the trade war. Friday’s US payrolls report will also be key, though it would only take a much higher-than-forecast reading to convince traders that Fed interest-rate increases this year are back in the cards.
Carry-trade returns from eight developing-nation currencies, funded by short positions in the dollar, snapped a three-month rally in February. This signal that a dollar revival could undermine bullish emerging-market bets. Mitigated risk could come from renewed criticism from US President Donald Trump of the Federal Reserve and comments over the weekend that the dollar was too strong.
China Premier Li Keqiang will outline 2019 goals for economic expansion at the National People’s Congress. We expect China to set a lower growth target of either about 6%, or from 6 to 6.5 %, down from around 6.5% for the past two years. All eyes in particular will be on Premier Li Keqiang’s government work report on Tuesday outlining 2019 goals for GDP growth, the fiscal balance, inflation, money supply and credit growth.
Meanwhile, US officials are preparing a final trade deal that President Trump and his Chinese counterpart Xi Jinping could sign in weeks, with Washington eyeing a summit between the two presidents as soon as mid-March. The yuan strengthened for a fourth month in February, its longest winning streak since January 2018.
The currency is approaching a key technical level against the dollar, a break of which is set to fuel further gains in the yuan. China’s currency has rallied five times and has definitively crossed the 50-week moving average since 2009. We believe yuan’s strength will also transfer its optimism into other currencies in the region including Aussie and Kiwi.
EUR/USD: This pair may rise towards 1.14 as Trump commented over the weekend that dollar is too strong at this moment.
AUD/USD: This pair may rise towards 0.7140 as China’s government meeting may boost China’s outlook, and this will benefit the Aussie
XAU/USD: This pair may rise towards 1305 this week
Fullerton Markets Research Team
Your Committed Trading Partner