Monthly Wrap: US-China trade uncertainty restrains the Australian Dollar

Philip McHugh December 11th 2019 - 2 minute read

Key takeaways:

–              Australian Dollar sinks as RBA hints at further monetary easing

–              Australia’s economic growth struggles in third-quarter

–              AUD Monthly lows: £0.51, €0.61, $0.67, NZ$1.03, C$0.89

–              AUD Monthly highs: £0.53, €0.62, $0.68, NZ$1.08, C$0.91
The Australian Dollar struggled heading into December following a disappointing performance from Australia’s manufacturing sector and a slump in October’s construction projects due to a slowing domestic and global economy.

The Reserve Bank of Australia (RBA) held interest rates at a record low of 0.75% at the beginning of the month, but RBA Governor Philip Lowe did state that the board was ‘prepared to ease monetary policy’ to support ‘sustainable growth in [Australia’s] economy’.

The ‘Aussie’ also continued its downward spiral after Australia’s GDP undercut expectations and fell from 0.6% to 0.4% in the third-quarter.

Meanwhile, US-China trade uncertainty continued to dampen market confidence in the ‘Aussie’ as relations between the world’s two largest economies soured after US President Donald Trump signed the Hong Kong bill into law.

Beijing reacted negatively to Washington’s perceived meddling with Chinese affairs, further weakening market hopes of a ‘phase one’ trade deal emerging before the end of the year.

Wendy Cutler, the former acting deputy US Trade Representative, commented: ‘[Both the US and China] have said that they are very close, but I can tell you as a trade negotiator that the last mile is always the most difficult.’

With China being Australia’s largest trading partner, this limited the appeal in the risk-sensitive AUD and buoyed safe-haven currencies like the US dollar.

The direction of the Australian dollar will be largely determined by US-China trade developments throughout December and possibly into 2020.

Any signs of Washington and Beijing coming to a consensus ahead of the 15th December tariff deadline would boost the risk-averse ‘Aussie’.

The RBA’s meeting minutes report, due for release on 17th December, will also be in focus this month.
Any dovish commentary about the health of Australia’s economy from the central bank could undermine the ‘Aussie’.

Written by
Philip McHugh

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