US Prepares to Confront China on Trade – Australian Dollar (AUD) Exchange Rates Slide
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate tumbled on Monday, with the ‘Aussie’ Dollar seemingly more vulnerable to escalating concerns of a global trade war than its New Zealand counterpart.
US President Donald Trump is reportedly preparing to levy an extensive range of tariffs on Chinese consumer goods, and whilst the exact scope is yet to be finalised, recent reports suggest that the US President wants to target upward of $60bn in Chinese products.
The intention is to reduce the US trade deficit with China, with President Trump tweeting earlier this month that ‘China has been asked to develop a plan’ to reduce its deficit by $100 billion.
Whilst Australia is exempt for the time being from the recent US tariffs on steel and aluminium, US tariffs against China could severely hurt Chinese industry, thus reducing Chinese demand for Australia exports such as iron and copper.
Beyond this, a tit-for-tat response could escalate between nations, potentially threatening the current accelerated growth of the global economy.
Lacking much in the form of notable domestic data releases today this news was able to take centre stage, with traders essentially having very little reason to buy into the ‘Aussie’ Dollar.
New Zealand Dollar (NZD) Exchange Rates Limited by Imminent RBNZ Rate Decision
The New Zealand Dollar (NZD) might have the upper-hand against the Australian Dollar today, but markets are concerned that it could fall as the focus shifts this week to the Reserve Bank of New Zealand (RBNZ) rate decision (Thursday).
Acting Reserve Bank Governor Grant Spencer is not expected to make any big moves at this meeting, with markets expecting the official cash rate to remain at rock-bottom levels.
Beyond this, economists are not expecting changes to the accompanying RBNZ statement, with the RBNZ not expected to raise interest rates until the second half of 2019.
Indeed, Westpac currently says that the event will be a ‘low-key affair’ and that monetary policy will likely take a ‘back seat’ to fiscal policy.
If this occurs then the ‘Kiwi’ Dollar could come under severe pressure, with this week’s dairy trade price auction also liable to knock NZD up or down.
Australian Dollar New Zealand Dollar (AUD/NZD) Exchange Rate Forecast: Chaos on this Week’s US Fed Rate Decision
Both the Australian Dollar and the New Zealand Dollar could see immense pressure this week depending on the result of Wednesday’s rate decision from the US Federal Open Market Committee (FOMC).
Markets are currently pricing in a rate hike, with the accelerating growth of the US economy having pushed new Fed Chairman Jerome Powell and many of the Federal Reserve Presidents closer to accepting 4 rate hikes this year, rather than the initially forecast 3.
The recent soft US inflation and wage growth readings could potentially scupper the bank’s plans, but economists are generally quite concerned about being caught flat-footed in the wake of speedy US economic growth.
If the bank does move hawkishly then AUD/NZD could tumble even further, with the success both liable to be dictated by Australia’s employment readings this week, and New Zealand’s dairy price auction, which is expected to recover slightly now that the drought has ended.