The Australian Dollar’s recovery against its American cousin continues and it is partly because of a trade rapprochement between the United States and China. This, according to analysts, offers a brighter outlook for the AUD as the Asian nation is Australia’s primary customer in its raw materials sector. The United States, on the other hand, is a crucial partner for the country especially in terms of security. Canberra has much to gain in the cordial relations between Washington and Beijing and said gains are arguably more than any other country in the region.
Bullish Forecast
Once trade headlines are published, individuals who engage in forex trading will see the Australian dollar climbing up, experts say. It is noted that the AUD will move this week. However, the timing is difficult to predict. With the Federal Reserve meeting on monetary policy scheduled early Wednesday, AU time, said climb is highly likely, according to reports.
Another AUD/USD prop stems from predictions that US rates won’t rise that high in 2019. It has been reported by American news channel CNBC that the increase is at 25 points. This is reportedly good for the Aussie considering that the financial markets are experiencing uncertainties. The recent wave of sell-offs in financial markets is a sign of what is going to happen next, according to the Bank of International Settlements. In a report, the financial organization’s monetary and economic department head Claudio Borio said, “The market tensions we saw during this quarter were not an isolated event. Monetary policy normalization was bound to be challenging, especially in light of trade tensions and political uncertainty.”
Apart from normalization of monetary policies, economic uncertainties are lurking. One example, experts say, is the status of Brexit negotiations between the British government and the European Union. The United States, on the other hand, has reported deficits. Clear signs of a downturn is also being seen globally. It is noted though that despite the positive outlook for the AUD, the currency will still be stuck like the others while it is waiting for the Federal Reserve’s monetary policy meeting. The results are said to be released on Thursday, based on reports.
Beijing and Washington: Are Cordial Relations Truly Possible?
While it is expected that improved trade relations between the United States and China will help the Australian dollar gain ground in the forex market, Washington says that Beijing has “unfair competitive practices” that are hurting foreign companies. In fact, the American government even said that China is harming workers. Many of said practices violate World Trade Organization (WTO) rules. The United States vowed to continue reform efforts even if Chinese officials such as Zhang Xiangchen are very vocal about Trump’s tariffs on aluminium and steel products. Zhang adds that the U.S. government is allowing protectionism to proliferate.
The heated exchange happened at a WTO review of U.S. trade policies, according to Reuters. The closed-door review will reportedly continue on Wednesday. The WTO dispute settlement already “strayed
far from the system agreed to by members,” said Shea. Another problem is the Appellate Body doesn’t have new judges just yet as Trump reportedly disallowed new appointments.
Things Are Looking Up
The Australian dollar and the country’s economic growth is at risk as Beijing and Washington engage in a trade war. The repercussions can result to a downturn, experts say.
Back in September, The Guardian reported that the trade war has already escalated. Politicians and economists agreed then that Australia will be exposed to blows suffered by the two countries if the trade disagreement continues. The sentiments are still the same but things are said to be looking more positive considering the bullish forecasts.
However, talks going in the opposite direction will result in a serious setback for the Australian dollar. Australian exporters will be caught in the trade war between Beijing and Washington while businesses are predicted to suffer losses.
The Chinese government retaliated with tariffs on US goods after Trump targeted Chinese imports in the third quarter. The Guardian then noted a slowdown in Australia’s economic prospect for the rest of 2018 and into the next year should heated exchanges continue.
Despite said problems, the financial markets shrugged off the tariffs and have also shrugged off recent reports. In fact, a Reuters report says that Beijing and Washington are both willing to pursue reforms. Tokyo’s index jumped 1.3% in September hile the ASX 200 increased by 0.4%. The Shanghai composite as also up by 0.3%. The mood has been optimistic since September which means that foreign exchange investors and stockholders believe that the tariffs could have been much worse. The impact of the trade is reportedly already priced in share values.
The Aussie, being utilized as a world trade barometer jumped to USD 72.26c in September and has remained relatively at the same level. The Chinese yuan also reversed recent losses.