Picks Itself Up Off The Canvas

Following a spike lower after the announcement that China and Australia would suspend all economic relations yesterday AUD/USD recovered all of its losses to finish higher on the day. The pair rose to highs around 0.7788 supported by higher commodity prices and losses in the greenback.

• The Debelle speech offered little in the way of market moving commentary, he reiterated the RBA's commitment to easy policy but noted that any changes would be data dependent rather than on a set timeline.
• Data earlier today from AIG showed the April Services Index rose 2.3 points to 61.0, input costs and employment were the biggest gainers, while wages and capacity utilization lagged.
• On the deteriorating nature of relations with China CBA says: "Nevertheless, souring diplomatic ties between China and Australia is an important downside risk for AUD. However, as long as Australia's largest export to China, iron ore, is unscathed the fundamental AUD/USD uptrend is intact. The lack of adequate substitutes for Australian iron ore and China's growing iron ore demand suggest iron ore is unlikely to be targeted by China. We continue to expect AUD to lift towards 0.82 over the coming months."
• From a technical perspective AUD/USD earlier this week traded below first support at 0.7691, Apr 22 low. This threatens the bullish price structure that has dominated after the recent break of a trendline resistance drawn off the Feb 25 high. A deeper pullback would open losses toward 0.7635 and the 0.7586 key near-term support. Resistance is unchanged at 0.7816/18 the 18 Apr 29 highs. A clear break of this hurdle would be bullish and open 0.7849, the Mar 18 high.
• Markets look ahead today to the RBA SOMP at 0230BST/1130AEAST.