In a familiar pattern, the Australian dollar (AUD) has begun its slide against the US dollar (USD) again. It has now retreated into the 0.6360-0.6350 area, marking out new monthly lows. This pessimism comes on the heels of sentiment shifting toward risk. That jump was fueled by bullish news from the US-China trade negotiations that broke over the weekend. In currency markets, AUD/USD had business earlier today, up 0.03% to 0.6375. Nonetheless, it appears the currency pair is on course for further downside.
Trump Administration’s US Trade Representative Jamieson Greer laid out some very encouraging news. As part of those negotiations, China has committed to eliminating certain enumerated countermeasures. On his blog, America’s Trade czar said he warned though that if the trade balance doesn’t improve, tariffs on Chinese goods might be re-introduced. This statement is a dangerous indication of how fragile the current state of trade relations is between the two global economic powerhouses.
Background of the Economic Conflict
The United States-China economic war began in earnest in early 2018. So, both countries swiftly responded with tariffs of their own on each other’s goods. Former President Donald Trump further raised the stakes by promising a punitive 60% tariff on all Chinese imports. He made this enormous promise bold if he is re-elected to office again. In response, China retaliated by imposing tariffs on hundreds of US goods, such as cars and soybeans.
After some back and forth, by January 2020 the two countries had completed the Phase One trade agreement. This treaty was meant to reduce hostility and increase commerce between the two. Recent undercutting started. Earlier this year President Joe Biden called for a review of Section 232 tariffs caused by former President Trump on imported cars/trucks. Together, these developments have produced an unprecedented and uncertain trading environment, impacting currency valuations and attitudes toward risk on a world-wide basis.
Current Market Dynamics
With the US-China flashpoints risk swaying from one side to another, the AUD/USD currency pair is certainly under extreme pressure. The recent turn in risk sentiment has hardly been sufficient to […] The post Why the Australian dollar can’t catch a bid appeared first on MacroBusiness. Analysts agree that significant short-term wins are within striking distance. With geopolitical tensions remaining high, the fundamental picture remains bearish AUD/USD.
The USD/JPY pair remains around 148.00. It largely is driven by risk-on sentiment in global markets, particularly when looked at as relative to the Australian dollar’s plight. Investors are rushing to safe-haven assets such as the Japanese yen. This has in turn resulted in a spike in USD/JPY exchange rate. It’s hard to deny that recent market dynamics reflect a pronounced risk-on attitude by investors. This development makes it harder on higher yielding currencies like the AUD.
Impact on Commodities and Future Outlook
The volatility in currency values has spilled over into commodity markets, especially gold. Gold started the week on the back foot, falling back below the $3,200 level per troy ounce. Market analysts point out that gold price increases have clearly been limited to around the $3,250 per ounce range. This means that investors are starting to look elsewhere as market sentiments begin to change.
Looking forward, the outlook AUD/USD remains highly uncertain with global and geopolitical factors still dominating market conditions. US-China relations are at a tenuous, dangerous crucible today. Traders are advised to remain vigilant for signs of shifting policy away from this direction or comments from key figures such as Greer or President Biden himself.