AUD/USD rebounded sharply after China's central bank announced measures to stabilize the yuan, but bearish risks remain even though the aussie appears safe within its range for now. AUD/USD rallied to the nearly converged 10 and 21-DMAs and toward the midpoint of its broad 0.7300/0.7500 range.
While the PBOC spooked yuan bears by lifting reserve requirements, the resulting USD/CNH weakness is likely temporary. U.S.-China trade tensions keep ratcheting higher, with China proposing retaliatory tariffs on $60 bln worth of U.S. goods nL4N1UU4QP.
Meanwhile, White House advisor Kudlow nL1N1UU0S0 warned China in a Fox Business interview against underestimating Trump resolve on trade. The heightened trade tensions may make the PBOC reluctant to aggressively boost the yuan, and any focus on China's FX reserves or the perception that it was trying to establish capital controls by stealth would also hinder the yuan's recovery.
Divergent paths for Fed and RBA rates should also keep the greenback's yield advantage intact, limiting any AUD/USD rallies.
AUD/USD's consolidation is likely to persist and should eventually resolve with a break to new trend lows.
Bears still have eyes for 0.7110/60 at the moment.
chart: Click here