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More Good News for Aussie, Kiwi; Not So Great for Bitcoin

The Australian and New Zealand dollar currencies gapped higher on Monday after the US and China agreed this weekend to suspend new tariffs on goods worth several hundred billion dollars. Meanwhile, bitcoin sank back below $4,000.


Heading into the evening hours in London, the Australian dollar and New Zealand dollar were both trading half a cent higher on the day at respective rates of 73.6 and 69.3 US cents, close to multi-month highs.

The Aussie and kiwi had begun the week gapping higher following developments at this weekend’s G20 summit in Argentina, at which US President Donald Trump and his Chinese counterpart Xi Jinping agreed to a 3-month suspension on planned increases to trade tariffs.

On January 1st, Washington had been scheduled to raise tariffs on $200bn worth of Chinese goods from 10 to 25 percent. It was believed by most analysts that this would have been followed by further tariff increases by the Chinese, this time on as much as $110bn worth of American-made goods. These tariff hikes will, for the time being, be scrapped while further talks between the world’s two largest economies can be undertaken.

AUD to USD - 3 month chart to 03 Dec
AUD/USD - 3 month chart to 03 Dec

Developments at the G20 offer further cause for optimism on the Australian dollar and New Zealand dollar. In recent weeks, analysts have becoming increasingly bullish on the highly correlated Antipodean currencies given recent improvements to the outlook for Australian wages and inflation, and to the technical backdrop.

While matters of monetary policy have played a significant role in the Australian dollar’s 10 percent decline since late January, a significant portion of weakness has been attributed to a softer outlook for global trade. Trade tariffs would weaken economic growth in China—by far Australia’s largest export market—as well as prices for industrial commodities, upon which Australia relies. Needless to say, easing trade tensions will support higher Aussie exchange rates.

The New Zealand dollar narrative is much the same as that of its larger cousin, not only because of New Zealand’s significant exposure to the Australian and Chinese economies, but also because of similarities in monetary policy between the RBA and RBNZ—interest rates in both New Zealand and Australia remain at record lows and are unlikely to be raised until late 2019 at the earliest.

BTC to USD - 3 month chart to 03 Dec
BTC/USD - 3 month chart to 03 Dec

For bitcoin, sentiment is far from positive.

After a week of relative stability, the world’s largest cryptocurrency by market capitalization is back below $4,000. At 7pm GMT on Monday, bitcoin was valued on the Bitfinex exchange at $3,903—marginally higher than November’s low of $3,657 but 80 percent lower than last December’s extraordinary highs near $20,000.

Bitcoin has been hammered in 2018 following regulatory crackdowns, social media advertising bans and as the “store of value” myth has been debunked. Institutions, too, have scaled back or reversed plans to enter the cryptocurrency space, none more so than Goldman Sachs.

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