Aussie Coal Ships Stranded

Following recent reports that more than 50 ships delivering Australian coal to China have been left stranded off the coast of the country, the Australian PM is now engaged in efforts to ease tensions between the two nations. More than 1000 crew members, and more than $500 million worth of cargo have been left stranded following China’s decision to blacklist a range of Australian commodities being imported.

Tensions erupted between the two nations earlier this year following Australia’s spearheading of the campaign calling for an investigation into China’s role in, and handling of, the COVID outbreak. Given China’s central importance to the Australian economy as the largest importer of Australian goods, the blacklisting of exports, which began with individual items and has grown rapidly over the year, has drawn increasing concern from the administration.

Australian PM Focused on Resolution

The Australian PM, Scott Morrison, announced this week that he has his “best people” now working on soothing the tensions with China. Morrison told Australian reporters: “we will work the process through with the Chinese government to get the best possible outcome that we can” and while he acknowledged that “there are obviously tensions” he said that these would not be “resolved by Australia surrendering its sovereignty.”

However, the path to resolution will not be an easy one. There has been no direct contact between the two nations since April. Along with the blacklisting of Australian coal, china has also blacklisted or placed cumbersome tariffs on a range of other key exports such as barley, beef, copper and wine.

Commenting on the situation regarding the more than 50 cola ships stranded off its coast, China this week said the delay was a result of the need to strengthen its examination of imports, while also blaming Australia for the uptick in tensions this year.

Chinese Embassy Responds

The Chinese embassy in Canberra said: The root cause of the deteriorating bilateral ties is Australia’s repeated wrong acts and remarks on issues concerning China’s core interests and major concerns as well as its provocative and confrontational actions. Those who have caused problems should be the ones to solve problems.”

Currently, AUD is being supported by the better risk backdrop seen amidst the CVID vaccine news which has lifted investor sentiment. However, should these tensions continue through next year and harm Australia’s export market in a post-COVID world, this could become far more a headwind for the AUD.

Technical Views

AUDUSD

Following the breakout above the local bearish channel (bull flag), price is now close to testing the current 2020 highs of .7413. A break above there would open the way for a move higher towards the .7656 level. However, with momentum studies showing strong bearish divergence, traders should note risks of a potential double top and reversal at the level.

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