Four Scenarios for the Aussie Dollar Amid Renewed Trade Tensions
The US-China trade spat is back in the driver's seat for the Aussie dollar, as it finds itself once again tied to US-China trade developments.
We discuss four scenarios for AUD/USD based on potential developments in Sino-American relationships. Further escalation will weigh on AUD, but a re-run of April's chaos could actually lead to a higher AUD/USD.
We admit we didn’t expect AUD/USD to be trading below 0.6550 a month ago.
The USD rally – hardly sustainable in our view – and the rapid re-escalation in US-China trade tensions have both surprised. Until markets are reassured we’re not heading for a repeat of April’s mammoth US tariffs on China, the Aussie dollar will struggle to benefit from its otherwise constructive fundamentals.
But those fundamentals would crumble in a major trade war: the Reserve Bank of Australia (RBA) would need to cut more, growth would falter, and commodity prices would suffer.
Author's summary: Aussie dollar tied to US-China trade developments.