2019 is looking like it could be a very testing year for the Australian dollar, with a number of possible outcomes on the currency. By and large, it is likely it will be overseas events which act as the bigget driver on the currency with the Trade wars between the US and the China looking a key factor to drive the currency. With 30% of Australian exports going to China, the economic outlook on China and global trade in general, is vital to determining how the Australian dollar will behave.
Throughout 2018 the market has been see-sawing on the prospect of the trade disputes deteriorating or improving. The overall expectation in 2019 is the trade tensions will only deepen as both the US and China dig their heels in, seeking to save face and ultimately harming their economies in the process. Donald Trump is looking like he will only continue to put pressure on China and the Chinese are unlikely to back down.
The recent extension of the 10% tariffs further into 2019 was seen as welcome, although the looming prospect of 25% tariffs on $200 bn worth of goods should be cause for concern. The market is eagerly awaiting the next steps and future direction of the trade disputes. Even with these short term ‘lulls’ in sentiment, the overall negative effects from this issue should be a thorn in the side of the Australian dollar in 2019.
The RBA, Reserve Bank of Australia, have been very aware of the trade concerns and this may well weigh on their decision making process in the coming year. The likelihood is that the RBA will not raise interest rates next year, as they have to allow the Australian economy the space it needs to continue growing, amidst the uncertainty of a slower Chinese economy.
There is even speculation the RBA might need to consider an interest rate cut, should the Australian economy really struggle. Clients holding Australian dollars to sell, might wish to take stock of the favourable levels on offer compared to how weak the currency might get next year.
Thank you for reading and please speak to me Jonathan Watson to learn more regarding the currency and the best strategy to maximise value.