Australian Dollar Weakens on Chinese Conflict

Australian Dollar Looking Bullish

An ongoing fake news spat with China weighs heavily on the Australian dollar as the wait goes on for a vaccine.

Despite recent good news, the Australian dollar slipped back over the course of the day, with Brexit optimism seeing GBP rally strongly.

Against sterling AUD started the day riding high at 0.5541. It briefly jumped to a high of 0.5549 before slumping to a low of 0.55128, closing the day at 0.55205.

It was a similar story against the euro where it fell slightly from 0.61258 to 0.61137 at the close with a peak of 0.61339 in between.

Meanwhile the dollar traded relatively steadily over the course of the day. Opening at 0.74257 it slipped to 0.74146 before recovering to a high of 0.74482 and levelling off to a close of 0.74310.

Turning Bearish

Positive economic news had supported the Australian dollar throughout the week with good news on the jobs front, no change on interest rates and good data coming out of China. However, with the Reserve Bank of Australia (RBA) remaining open to the idea of further stimulus, the economy is not out of the woods yet.

Even so, with a recovery in sight and coronavirus contained things look good going into the new year. This pull back comes from a mixture of developments overseas and at home.

In the UK, markets are still hoping for a deal, possibly at the weekend with the return of the internal markets bill to parliament, seemingly putting pressure on negotiators. Even so, much of the rhetoric from the two sides has been negative with the UK accusing the EU of hardening its stance.

On the flip side, the UK has been buoyed by the approval of Pfizer’s vaccine. It’s the first regulator to do so although the US and EU appear to be close behind. Australia, meanwhile, is sticking to its March timetable with the main regulator saying it will have reviewed the Pfizer vaccine by January 2021.

John Skerritt, of Australia’s therapeutic Goods Administration said staff had been told to put away plans of a holiday to get the work done.

However, the biggest worry at the moment comes from China where a Twitter spat has escalated into full on tensions. China’s Premier has refused to apologise for a doctored image of an Australian soldier apparently committing war crimes.

Prime Minister Scott Morrison condemned the image while calling for China to reopen the diplomatic process and re-engage. However, China has responded by slapping tariffs on Australian wine.

The spat is countering the positive economic news, with the RBA expressing uncertainty about its long term impact. However, with the Australian economy moving into 2021 on an increasingly confident footing, the dollar remains one to watch in the new year.

Get in touch to find out more about how tensions between Australia and China could lead to further tariffs and impact the AUD, and the tools available to you to to limit your exposure to the quickly changing currency markets. I’ll be happy to respond personally.