Trump Talks Tough on Trade – Australian Dollar (AUD) Exchange Rates Flounder
The Australian Dollar Pound Sterling (AUD/GBP) exchange rate fluctuated on Friday, encumbered by growing risk aversion as markets reacted to US President Donald Trump’s calls for trade tariffs on the importation of steel and aluminium.
Trump proposed a tariff of 25% and 10% on steel and aluminium respectively, arguing that the tariffs would protect US companies and benefit the US economy and US producers ‘for a long time’ by promoting the creation of new manufacturing plants.
This decision was a reflection of the similar sentiment within the US Commerce Department, which stated that tariffs against foreign producers could be necessary in order to protect the national security interests of the US.
Nonetheless, the decision is notable in that many are concerned it could provoke a global trade war, with other countries then imposing tariffs in response.
This could prove extremely detrimental for commodity based economies like Australia’s – a prospect that drove investors away.
In other news, Thursday’s poor private capital expenditure reading also limited the ‘Aussie’ Dollar, with a print of -0.2%, down from the previous period’s 1.9% and the forecast of 1.1%.
Theresa May Outlines 5 Rules for Brexit Negotiations in Latest Speech – AUD Exchange Rates Fail to Capitalise
Another notable driver of movement today for AUD/GBP was UK Prime Minister Theresa May’s Brexit speech, a talk that largely outlined details that were already known – though it did include some noteworthy soundbites.
The PM laid out some hard facts, asserting that the existing models for a trade relationship do not provide a way forward, and that the UK’s access to the single market would likely be a lot less than it is now.
This was disappointing but expected news for some British businesses, however the possibility of a bespoke, ‘off-the-shelf’ model does mean that the outlook isn’t entirely grim.
Indeed, the UK’s refusal to remain within the customs union could also free it to make trade deals during the transition deal with other nations, a prospect that some businesses would welcome with open arms.
Theresa May also defended herself from accusations that the UK is making things harder by trying to ‘cherry pick’, stating:
‘If this is cherry-picking then every trade arrangement is cherry-picking’.
It should be noted, however, that in the QnA that followed May acknowledged that the no-deal option is still possible, and that no-deal is still better than a bad deal.
This possibility is very much anathema for the markets, with the prospect of a cliff-edge Brexit liable to crush demand for the Pound.
Nonetheless, the threat of a global trade war prevented the Australian Dollar from capitalising on Sterling’s current vulnerability.
Australian Dollar Pound Sterling (AUD/GBP) Exchange Rate Forecast: Australian Cash Rate and UK Services PMI in the Week Ahead
Notable events in the week ahead for the Australian Dollar Pound Sterling (AUD/GBP) exchange rate will include Monday’s Australian building approvals, and TD securities inflation gauge, as well as the UK’s services, and composite purchasing managers’ index readings.
Tuesday, however, will feature Australia’s interest rate decision and an accompanying speech from Reserve Bank of Australia (RBA) Governor Robert Lowe.
This event could apply greater pressure to the ‘Aussie’ Dollar, with markets now not expecting a rate hike from the central bank for the foreseeable future due to poor private sector wage growth and dwindling acceleration in Australian inflation as a whole.
Indeed, if Lowe proves cautious, as markets expect, then the AUD/GBP exchange rate could slip even further, especially if the threat of global response to the US trade tariffs is realised.