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Australian Dollar at 4-Month Low After China Announces Tariff Retaliation

The US-China trade war is hotting up and that’s bad news for the Australian dollar, which slipped on Monday to a 4-month low against the dollar, euro and yen.

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The Australian dollar weakened on Monday to levels not seen in 4 months against a number of important currencies, including the US dollar, euro, Japanese yen, Hong Kong dollar, Swiss franc and Singapore dollar.

The Aussie’s start-of-week tumble followed a significant escalation in the ongoing trade spat between the US and China.

At US69.5¢, the benchmark Aussie exchange rate, AUD/USD, is at a level that has only been seen once since early 2016 — during this January’s anomalous “flash crash.”

AUD to USD - 1 Week chart to 13 May
AUD/USD - 1 Week chart to 13 May

On Monday, China’s Ministry of Finance announced it would impose tariffs on $60 billion worth of American imports starting on June 1st in retaliation against US trade policies. On Friday, with trade talks leading nowhere, Washington hiked tariffs on $200 billion worth of Chinese goods to 25 percent, from 10 percent, and per reports, the Trump administration is preparing duties that might affect goods worth a further $325 billion.

The Australian dollar is particularly responsive to developments on US-China trade because of its longstanding sensitivity to risk sentiment, because China is by far Australia’s largest trading partner, and because a breakdown in the trading relationship between the world’s two largest economies might threaten prices of industrial commodities, which Australia exports in great quantities.

This is the second piece of bad news for the Australian economy in recent days, the other being data that shows home listings for the February-April period down a massive 21.5 percent from the same period last year — the slowest pace of new listings since 2004.

It goes without saying that the currency support received after the Australian central bank upheld interest rates last Tuesday has evaporated. Per recent AUD forecasts, the Aussie is on track to lose another 5 percent of its value before year-end.

 

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Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.
 

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