Mixed messages on Trade Wars mystify AUD Exchange rates

The Australian dollar has been pulled from pillar to post as conflicting reports on the Trade Wars between China and the United States send mixed signals to the currency markets.  A report from the Wall Street Journal newspaper indicated the US might be ready to temper down some of the tariffs and their tone in the talks, to try to seek a resolution. This report was then quickly dismissed by the US Treasury Department, leading to the Australian losing value.

The Trade Wars are a major driver on the currency as investors seek to gauge the likelihood of Australia suffering any economic slowdown as a result of the expected slowdown in China. China is predicted to come off the worst from any developing tensions and a closely monitored Chinese Manufacturing survey earlier in the year indicated a slowdown. This saw the Australian dollar weaker and has set the tone for 2019 for currency so far.

We have expected a more negative twist and turn of events on the Trade Wars, Donald Trump is not the kind of person to easily step back from confrontation even where it causes harm. This attitude has seen the US Government enter its longest ever shutdown which has weighed heavily on sentiment and could put further pressure on the global economy.

Of benefit to the Australian dollar could be any quick turn resolution in sentiments but it does seem likely the Trade Wars will continue. Donald Trump’s actions will continue to be under scrutiny and he is unlikely to easily and quickly back down from the rhetoric that has driven the Australian currency lower.

Worsening economic data for the Chinese economy will only heap pressure on the Australian currency as investors have to weigh up the longer term prospects for economy in such uncertain global conditions. Whilst any surprise twists in sentiment could see pockets of Australian dollar strength it does feel that the general trajectory will be negative and the risks are to the downside with the currency.

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