- AUD / USD under pressure, launching into the lower bound of the week.
- AUD under the pressure of trade wars, risks and the resurgence of the USD.
AUD / USD is currently trading at 0.6452 and is dropping from a high of 0.6524 to a low of 0.6441, -0.28% at the time of writing. The American dollar is up and running today (DXY + 0.18% at the time of writing) following comments from the President of the Federal Reserve, Jerome Powell.
First, it is essential to note that the AUD will be vulnerable to the change of narrative between the United States, Australia and China. We are once again entering the realm of serious risks linked to the resumption of trade wars. This time, however, Australia joined the mix.
Trade wars are back with a vengeance
Australia’s call for an investigation into China’s role as the source of the COVID-19 pandemic has pulled the tail of the dragon. This is now rapidly turning into a trade war, one of which is sure to shake the nerves of investors who are already facing the prospect of major outbreaks of contagion to COVID-19.
Australian Trade Minister Simon Birmingham is seeking to negotiate with his counterpart Zhong Shan to try to resolve tensions following Beijing’s decision to block imports of Australian barley and beef earlier this week. At a time when Australia is already suffering from the economic impact of the closings (loss of $ 2.6 billion a week), this is the last surprise the nation needs right now. Australian barley shipments to China are worth about US $ 1 billion a year and the beef ban will affect about a third of the country’s exports to China, with an annual value of US $ 800 million.
You have hundreds of thousands of people who have died, millions who have lost their jobs and billions who have had their lives turned upside down, the least the world can wait for is an investigation and Australia is far away to be the only voice advancing this,
– Birmingham said.
Meanwhile, this does not mean that Australia will submit to China’s trade threats and release pressure on China’s management of COVID-19, as Australia and the United States are making serious allegations.
I was very clear that Australia would not change our public health policies or our national security policies or our political positions under the threat of economic coercion and this remains quite the case,
– Birmingham pointed out.
When you combine the above with the increasingly harsh rhetoric of Washington and Beijing, the tensions could not have come at a worse time for the markets. Earlier this week, White House trade advisor Peter Navarro said China should pay for its role in the spread of the coronavirus. “A bill must arrive for China,” Navarro told CNBC. “They have inflicted enormous damage on the world which is still in progress,” said Navarro, and even suggested that the United States could impose new tariffs or withdraw entirely from the phase one agreement which had thrown a milestone in a fierce 18-month battle between the two largest economies in the world and the booming markets.
Since the start of FX week, the AUD / USD has gone from a high of 0.6561 to a low of 0.6432. The flow did not completely cross your mind. The US dollar was mixed and some Australian data was not as bad as expected. However, the path at least resistance, basically, is weighted down at this point.
“It’s a bunch of commercial war remixes coupled with uncertainty about the economic outlook and the shape of things to come,” said analysts at Westpac. “The resulting stress makes AUD vulnerable to setbacks, especially since it has closely followed the MSCI China.”
ALL FOMC members against negative rates
Meanwhile, Fedell Powell’s comments hit a peak in the US dollar on Wednesday, further adding to the AUD / USD. Powell noted that the FOMC’s view on negative rates has not changed and reiterated that this is not something the Fed is considering.
“The Fed intends to continue using the tools he has already tried, “said Powell in response to questions at an event hosted by the Peterson Institute for International Economics.
The previous minutes on the negative rate debate indicate that all FOMC participants were against it.