US Enters Talks with China to Prevent Trade War – US Dollar (USD) Exchange Rates Climb
The Australian Dollar to US Dollar (AUD/USD) exchange rate tumbled on Tuesday as markets responded to news that the United States is in the process of negotiating its trade relationship with China.
US President Donald Trump may have escalated tensions last week by announcing tariffs on an estimated $60bn worth of Chinese goods, but US Treasury Secretary Steven Mnuchin has reassured markets somewhat by claiming that despite all the tough trade talk, the US is in trade negotiations with China.
‘We’re not afraid of a trade war, but that’s not our objective’, he stated on Monday, continuing:
‘We are going to proceed with our tariffs. We are working on that. We’re also working on investment restrictions, but we’re simultaneously having negotiations with the Chinese to see if we can reach an agreement. We’re having very productive conversations with them. I’m cautiously hopeful we’ll reach an agreement…’.
In this respect, the US is pushing for China to lower its tariffs on American goods and stop the forced technology transfer of US companies that enter its market.
If China capitulates on this front then fears of a trade war will ebb, potentially putting the US Dollar on more even footing.
RBA Kent Sounds Optimistic – Australian Dollar (AUD) Exchange Rates Fail to Capitalise
Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent had a few upbeat things to say regarding the state of the Australian economy and the RBA in the early hours today, though his comments did little to prevent AUD/USD from falling.
Kent claimed that good economic growth would raise the possibility of an increase in Australian consumer price inflation, but he also claimed that markets are under-pricing the speed of global economic growth and what it could mean for the RBA.
This sentiment indicated that the RBA could be pushed into hawkish monetary policy measures sooner than markets might have originally thought, though the current weakness of Australian wage growth makes this possibility unlikely in the eyes of the markets for the foreseeable future.
Australian Dollar US Dollar (AUD/USD) Exchange Rate Forecast: US GDP and Trade Balance Ahead
The Australian Dollar US Dollar exchange rate could see greater volatility this week as markets respond to a broad range of US domestic data releases.
These will include tomorrow’s US advance goods trade balance reading and annualised Q4 GDP reading, as well as Thursday’s US personal consumption expenditure (PCE) figures.
Out of these, it is likely that the GDP reading will take precedence, and with a drop forecast from 3.2% to 2.7% quarter-on-quarter it is possible that AUD/USD could find room to claw back some of its losses.
If the other readings prove upbeat, however, or it signs of a trade war continue to recede then the AUD/USD exchange rate could suffer even more losses.