The economy is feeling the heat from the trade tariffs already in Australia

Waiting For AUD/USD to Crash As Negative Events Build Up For the Aussie

Posted Thursday, August 30, 2018 by
Skerdian Meta • 2 min read

The Australian Dollar is taking one hit after another. Although, AUD/USD has remained pretty upbeat considering the negative events that have happened recently for the Aussie. In a different time, this forex pair would have tumbled lower on such events, but markets are sort of numb right now since we are in the summer holiday period. The other reason why AUD/USD is not diving hard is the fact that the USD has not been feeling well recently, so when the USD buyers return, chances are that this pair will be the one to take the first dive.

What has happened that makes this pair very vulnerable?

  • US-China Trade War – The trade war between the US and China doesn’t seem like it will end soon. China is begging for talks with the US, but US officials have said this week that now is not a good time to talk, meaning that the trade war will go on. This leaves Australia in a very vulnerable position since it depends heavily on exports to China.
  • Huawei Expulsion – Australia and China have their own issues with each other and last week Australia expelled the Chinese electronics and telecommunications giant Huawei from Australia. I don’t know if China will retaliate, but this is not good news for investors.
  • Westpac Hiking Mortgage rates – Westpac, which is one of the main banks in Australia, increased interest rates by 14 basis points yesterday and the other banks are expected to follow. Why is this bad for the Aussie? It is a negative event because this makes it difficult for the Reserve Bank of Australia to hike its interest rates and get going with its monetary policy. We weren’t expecting to see any rate hikes soon but this makes it even less probable for the RBA to do so.
  • Private Capital Expenditure Falls – Early this morning in the Asian session, the private capital expenditure fell by 2.5% when it was expected to increase by 0.6%. This shows that businesses in Australia are not investing in capital goods and machinery. In fact, investment is shrinking.

These are the events I could think of off the top of my head. Tomorrow we will see the Chinese manufacturing data, while early next week the Australian manufacturing and retail sales numbers will be published which might add to the negative sentiment for the Aussie.

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