James Hyerczyk
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The Australian and New Zealand Dollars are trading nearly flat early Thursday as worries over U.S.-China trade relations appear to be subsiding at least temporarily, following two days of selling pressure. The price action in U.S. Treasurys, the Japanese Yen and gold early Thursday, indicates that concerns over a trade deal impasse may have been overblown.

At 07:23 GMT, the AUD/USD is trading .6798, down 0.0003 or -0.05%. That’s up from a low of .6786. The NZD/USD is at .6413, down 0.0004 or -0.07%. Up from a low of .6397.

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The Forex pairs are rebounding from a steep sell-off on Wednesday that was fueled by reports that the trade talks between the United States and China may have hit an impasse.

The Aussie and Kiwi were pressured on Wednesday and early Thursday following a report that the highly anticipated “phase one” trade deal between the United States and China may not be signed by the end of 2019.

This comes following a report more than a week ago that claimed the trade talks hit a “snag” over the amount of U.S. agricultural purchases by China. And a report earlier this week that China is upset that President Trump has not agreed to rollback tariffs.

Reuters also reported, citing trade experts and people close to U.S. President Donald Trump’s administration, the completion of a partial trade deal could be pushed into 2020 as China seeks more extensive tariff rollbacks. That report came after The Wall Street Journal reported, citing former Trump administration officials, that the ongoing trade talks could hit an impasse.

Furthermore, investors are worried that a fresh row between Washington and Beijing over U.S. legislation on Hong Kong threatened to undermine their trade talks and delay a “phase one” deal that investors had initially hoped to be signed by now, according to Reuters.

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The marginal recovery in the Aussie and Kiwi suggest that perhaps the reports indicating the trade talk snags may have been premature. Again, we have to question reports generated by “unnamed officials” or “sources”. As far as I know, we have not heard any high-ranking U.S. or Chinese officials say the negotiations have hit a major roadblock.

The AUD/USD and NZD/USD started to bounce back after Chinese Vice Premier Liu He told Bloomberg that he was “cautiously optimistic” in reaching a “phase one” deal, but added that he was “confused” about U.S. demands.

Another trader in Shanghai said these headlines are mostly noise. “Market sentiment may change but the fundamentals of the negotiations have not. There have always been unresolved issues in these talks,” he said. “There is not a lot of willingness in the market to bet on one direction or another.”

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