How will the ongoing Trade Wars effect AUD?
Trump is fighting trade wars on several fronts. He is unhappy with the trade deals currently in place with the EU, China and the US and is also renegotiating the North American Free Trade Agreement (NAFTA) involving Canada and Mexico.
The US has been imposing tariffs on all fronts, with the tariffs of choice being steel and aluminium. The tariffs placed on China could prove particularly detrimental to the Australian economy due to Australia’s heavy reliance on the Chinese purchasing it’s raw materials. The tariffs could hit Chinese growth which would cause a change in demand and price for Australia’s raw materials, particularly iron ore.
Global economic uncertainty is causing investors to move away from riskier commodity based currencies such as AUD in search of safe haven investments. Despite the US being at the centre of the ongoning trade wars. It is proving to be the destination of choice for investors. Interest rate levels are impressive and there is predicted to be several more hikes from the Fed this year. Ten year treasury bonds are also offering some of the highest returns in years.
Personally I feel China is in a trade war that cannot be won. If they intend to match US tariffs Dollar for Dollar they would need to impose tariffs on all US exports which is simply not feasible and would hit both economies hard. This would in turn have repercussions on the Aussie.
GBP/AUD -Sterling remains fragile due the lack of clarity on access to the customs union. There is due to be a proposal put forward from Theresa May to her cabinet at Chequers on Friday. If the proposal is accepted on the third attempt Brexit negotiations can move forward and the proposal can be presented to Brussels.
If the proposal is initially accepted on Friday you can expect Sterling strength. Personally if I was buying Australian Dollars short term I would be moving in the 1.79s. 1.80 is proving to be a resistance point.
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