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Monthly wrap: AUD – US-China ‘decoupling’ fears drag on ‘Aussie’

currency-newsMonthly wrap: AUD – US-China ‘decoupling’ fears drag on ‘Aussie’
Key Takeaways:

•             Australia’s GDP falls to record lows in September
•             Could US-China ‘decoupling’ fears drag on the risk-sensitive ‘Aussie’?
•             AUD Monthly lows: £0.54, €0.60, $0.71, C$0.94, NZ$1.08
•             AUD Monthly highs: £0.56, €0.61, $0.74, C$0.96, NZ$1.10

The Australian dollar benefited from growing hopes of a trade truce between the United States and China over the last month.

Consequently, demand for risky assets spiked as Beijing and Washington appeared to honour the Phase One trade agreement.

Nevertheless, these gains proved short-lived following critical comments from US President Donald Trump early in September.

Trump reiterated the importance of decoupling the US and Chinese economies, leaving global markets concerned of escalating tensions between the world’s two largest economies.

At the beginning of September, the Reserve Bank of Australia (RBA) held interest rates at record lows of 0.25%, and stated that monetary policy will remain highly accommodative for as long as required.

Laing+Simmons’ managing director, Leanne Pilkington, was relatively upbeat about the Australian economy, saying:

‘Relatively speaking, the economic fallout of the coronavirus that is reverberating around global markets has not impacted Australia as hard as many other nations.’

However, Australia’s GDP data fell below forecasts in the second quarter, with the quarter-on-quarter figure sinking unexpectedly from -0.3% to -7%.

With Australia having officially entered its recession – and the GDP falling the most on record – ‘Aussie’ investors have become increasingly cautious as the outlook for the nation’s economy remains uncertain.

Looking ahead, the Australian Dollar will remain sensitive to developments between the US and China.

As a result, we could see the ‘Aussie’ continue to remain under pressure as the world’s two largest economies are again at loggerheads after Trump’s latest comments for ‘decoupling’.

The US President said: ‘If we didn’t do business with [China], we wouldn’t lose billions of dollars. It’s called decoupling.’

Australian dollar traders will also be eyeing today’s release of the Australian consumer inflation expectations for September. Any improvement in Australia’s economic outlook would prove AUD-positive.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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