China failed to intervene in the past few weeks, allowing the Yuan to fall to offset the impact of tariffs instead of selling foreign reserves to support the currency. Their actions risk further retaliation by the Trump administration and could spark a full-blown trade war.
A weakening Yuan is likely to increase demand for US Dollars, both as investors in the Middle Kingdom seek to withdraw and as borrowers with USD-denominated loans seek to hedge or repay.
The Dollar Index continues to test strong resistance at 95. Breakout is likely and would offer a target of 2016/2017 highs at 103.
Spot Gold is in a primary down-trend, consolidating in a narrow band above short-term support at $1220/ounce. Breach of support is likely and would offer a short-term target of $1200.
The Australian Dollar is also in a primary down-trend, consolidating above 73.50 US cents. So far, the weaker currency has cushioned local gold miners from the impact of falling spot prices.
The All Ordinaries Gold Index (XGD) recovered above support at 4950. Follow-through above 5100 would indicate another test of 5400.
But downside risk to Australian gold stocks is rising as the USD spot price falls. Gold is more volatile than the Aussie Dollar.