On Friday, it was the Australian Dollar (AUD)’s turn to get crushed against the US Dollar (USD). This steep drop underscores the continued pressures in the trade war between the United States and China. In the wake of the crisis, the USD significantly appreciated as safe-haven flows took over the foreign exchange (Forex) market amid increased uncertainty. The latest update from the White House has amounted to a total increase of US tariffs on Chinese goods to 145%, cumulatively. This development adds to what was already a tough economic environment.
The Forex market is incredibly dynamic, requiring careful navigation by traders and investors alike. As the dust begins to settle, most are looking for trusted allies to help them navigate these sudden shifts. Please note that the writer of this blog post is not a RIA. Moreover, FXStreet has that title or designation as well, so please do not treat any of FXStreet’s content as investment advice.
Traders geared up significantly this morning for the release of retail sales indicators in the United States today. This data could serve as the most important indicator of consumer spending and therefore overall economic health. Analysts kept a very close eye on this release because of its widely expected effects on market sentiment and currency valuations.
Now eyes turned to next week’s Consumer Price Index (CPI) data. This key information soon will be available in many other countries, like the UK, Canada, New Zealand, and Japan. This information will hopefully provide much wanted insight into inflationary pressures. These observations, if accurate, would have profound implications for the economy at-large and choices faced by central bankers around the globe.
Now, with the US-China trade conflict intensifying, it is this leading indicator that has forced a stop-start reversal in market sentiment. The trade war and US-imposed increasing tariffs have only intensified this climate of uncertainty. Consequently, many investors are running for cover to less risky assets. By the end of trading on Friday, that trend was evident. Safe-haven currencies, such as the USD, increased in dominance, while risk-sensitive assets, like the AUD, suffered.
The other major currency pair, AUD/USD, has depreciated using trade tensions. In addition to these things, larger market forces have been a huge influence. As the conflict deepened, many traders were very quick to react and shift their positions. This change effectively led to a rapid drop off in demand for the Aussie dollar. There is an increasing view of risk around investments tied to Australia. This concern is particularly acute for Taiwan given its highly dependent trade ties with China.
In Europe, the European Central Bank (ECB) is expected to consider trimming interest rates in an effort to stimulate economic growth amid ongoing uncertainties. If implemented, this could be the most important U.S. action to stabilize the currency markets. Second, it might strengthen the EUR against other currencies, especially USD and AUD.
The interactions between these factors illustrates how challenging the global economic landscape has become. Investors and traders should keep a watchful eye as they consider the emerging risks and opportunities presented by evolving market conditions.