AUD/USD

President Donald Trump said he would delay an increase in U.S. tariffs on Chinese goods thanks to "productive" trade talks and that he and Chinese President Xi Jinping would meet to seal a deal if progress continued.

The announcement was the clearest sign yet that China and the United States are closing in on a deal to end a months-long trade war that has slowed global growth and disrupted markets.

Trump had planned to raise tariffs to 25% from 10% on USD 200 billion worth of Chinese imports into the United States if an agreement between the world's two largest economies were not reached by Friday.

After a week of talks that extended into the weekend, Trump said those tariffs would not go up for now. In a tweet, he said progress had been made in divisive areas including intellectual property protection, technology transfers, agriculture, services and currency.

The president did not set a new deadline for the talks to conclude, but he told U.S. state governors gathered at the White House that there could be "very big news over the next week or two" if all went well in the negotiations. The White House did not provide specific details on the kind of progress that had been made.

The Chinese government's top diplomat, State Councillor Wang Yi, told a forum in Beijing on Monday that the talks had made "substantive progress", providing positive expectations for the stability of bilateral ties and global economic development, China's Foreign Ministry said. China's official Xinhua news agency said in a commentary that the goal of an agreement was getting "closer and closer", but also warned that negotiations would get more difficult as they approached the final stages.

Commodity-linked currencies gained on Monday after U.S. President Donald Trump confirmed he would delay a planned hike in tariffs on Chinese imports.

The Australian dollar, seen as a proxy for China risk because of Australia's dependence on Chinese demand for its exports is up by more than 0.7% today. The pair broke 7-day exponential moving average (at 0.7138) today. Daily RSI is biased up and a long lower wick is in place on February's candle. The next resistance level is February 21 high at 0.7207. We remain long.

Australia's economy slowed more than expected last quarter as consumers reacted to tepid wage growth by shutting their wallets, a disappointing outcome that sent the local dollar sliding as investors pushed out the chance of any rate hike.

Futures are now implying only a 20% probability of a hike by Christmas next year, down from 40% earlier this week.

Wednesday's GDP report showed Australia's economy expanded 0.3% in the third quarter, half of what the market had expected.

Annual GDP rose by a still-respectable 2.8%, but confounded expectations for a 3.3% increase.

The figures imply growth in the year to June was 3%, rather than the originally reported 3.4%.

The data will not be welcomed by the Reserve Bank of Australia (RBA), which predicts growth of around 3-1/2% this year and next.

Australia's economy has generally outperformed its rich world peers in recent years and is in its 28th year of growth without a recession. But while the RBA has maintained its optimism, the market is increasingly getting bearish on future momentum as Australia's once-booming housing market hits the brakes, with potentially adverse effects on consumer wealth and spending.

A long stretch of unusually slow wages growth has also throttled household incomes.

Indeed, a major drag in Wednesday's report came from private consumption, which added a mere 0.2% to growth after 0.7% in the June quarter.

The GDP report showed that while employers were taking on a lot of new workers they weren't paying them much more, so average wages rose by just 0.2% in the quarter.

This soft underbelly of the economy is a major worry for the Reserve Bank of Australia.  Adding to the case for caution is the ongoing U.S. trade dispute with China, Australia's single most lucrative export market. Thus while the RBA is still tipping economic growth of 3.5% this year and next, it shows no inclination to tighten anytime soon.

Federal Reserve Vice Chairman for Supervision Randal Quarles said that interest rates are approaching neutral, but the concept of neutral rate can be less useful after the economic conditions become more normal.

Fed officials estimate the neutral rate of interest is from 2.5 to 3.5%, according to Quarles. Asked if Powell meant rate hikes would end sooner rather than later, Quarles said it was not clear about exactly how much further interest rates would rise.

"Where we will end up in that range will depend on the data we receive and our assessment of the performance of the economy over the course of next year," he noted.

Neutral interest rate, a notion that is driving the Federal Reserve' s attitude towards the normalization of U.S. monetary policy, means a level neither stimulative nor restrictive to the economy.

"I think that it can be a useful concept in helping guide monetary policy, but it's not terribly precise," Quarles said.

It may be changing over time, and "its utility as the central organizing thought around how you are conducting monetary policy becomes less."

"Because we are nearing other time where and we're moving back into a normalize monetary policy, that what's really important is that the Fed Reserve have a clearly communicated strategy, about monetary policy and that we execute on that strategy in a way that's predictable and transparent," said the Fed official.

The remarks came after Jerome Powell, chairman of the Fed, said last Wednesday that interest rates are "just below" the broad range of estimates of the level that would be neutral for the economy. Market participants interpreted that as a dovish signal for future rate hikes, compared with his previous remarks in early October that rates were "a long way" from neutral.

Fed raised its benchmark interest rate for the third time this year on September 26 and made the target range between 2% and 2.25%. At that time, Fed policymakers indicated another hike in December, three more in 2019 and probably one more in 2020.

MyFXspot.com is an independent macroeconomic consultancy with thousands of subscribers all over the world. We provide fundamental research to help our clients make better investing decisions. Our subscribers should expect to get access to:

1Short-term trade ideas (entry, take profit, stop loss)

Forex: EURUSD, GBPUSD, USDJPY, USDCAD, AUDUSD, NZDUSD, EURGBP, EURJPY, EURCAD, GBPJPY, AUDNZD, AUDJPY

Precious metals: GOLD, SILVER

Stocks: S&P 500, DAX, SHANGHAI COMPOSITE

Commodities: WTI OIL

This is a sample publication:

2Investment Clock - great quantitative tool for investors

Different asset classes sectors tend to perform better than others at different phases of the economic cycle. We estimate current phase of the economic cycle and the Investment Clock shows which asset classes have historically outperformed in current phase of the economic cycle according to our research.

3Essential market news, technical and fundamental analysis, reviews of central bank decisions

We provide you regular commentaries on important economic and market issues and events, previews and forecasts of forthcoming data releases resulting from our knowledge, experience and quantitative tools.

4Last but not least

We describe fundamental factors, discuss recent changes in trends, resort to numerous quantitative tools and much more. You are able to take a close look at how we come to our conclusions and decide whether you share our current opinion regarding the market, but at the end of the day, it is you who decides what to do with your capital. That is why we strongly recommend you to conduct your own research and always rely on common sense – nobody knows what might work out for you just as you do.

Cron Job Starts