Warnings about Impacted Australian Trade Fail to Prevent AUD/USD Exchange Rate Rise
The Australian Dollar to US Dollar exchange rate (AUD/USD) has risen slightly on 2nd March, following a concerning declaration about trade from US President Donald Trump.
Mr Trump has announced that there will be a 25% tariff on steel products entering the US, and a 10% tariff on aluminium.
While such measures could harm the Australian economy in the long-term, as the US Dollar has been more badly affected by the news the AUD/USD exchange rate has risen.
Commenting on Trump’s decision, Australian Trade Minister Steve Ciobo said;
‘The imposition of a tariff like this will do nothing other than distort trade and ultimately we believe will lead to a loss of jobs.
My concern remains [that] we could see retaliatory measures that are put in place by other major economies.
(We) have said over and over again, if we see a breakout of action and reaction from major economies, the only thing that will arise from that will be a slowdown in economic growth and over time, if that got bad enough, we could see a recession and we know the consequent impact of that’.
Australian business leaders have been ambivalent about the news, with Australian Industry Group Chief Executive Innes Willox stating;
‘The decision by the US to raise tariffs on aluminium and steel products is a clear step in the wrong direction that risks further escalating global trade tensions.
There will be a complex mix of winners and losers among Australian producers and their employees from the particular measures.
For example, cheaper Chinese steel destined for the US may end up in Australia’.
US Dollar to Australian Dollar Exchange Rate Declines on Growing Unrest over Trump’s Tariff’s Decision
Sticking with the news of a tariff on metal imports, the US Dollar has declined against the Australian Dollar, Euro and Pound today, following President Trump’s announcement.
The decision to impose tariffs on steel imports has been met with international criticism, while domestic opposition has also started to form.
In the latter case, William Dudley, Federal Reserve Bank of New York President, has blasted the trade tariff plans by saying;
‘There are many approaches to dealing with the costs of globalisation, but protectionism is a dead end.
Trade restrictions address the symptoms and not the underlying problems, and they introduce other costs and distortions.
While such measures might generate a temporary boost to growth from greater domestic production and consumption, these would likely be offset by a range of other costs.
Over time, such measures would retard productivity growth and thereby shrink the economic pie’.
Australian Dollar to US Dollar Exchange Rate Forecast: Will AUD/USD Drop on AU Services Stats?
The Australian Dollar could drop back against the US Dollar in the near-term, when the AIG services index is announced on 5th March.
The reading for February is predicted to show a slight decline in services sector activity, which could lead to the Australian Dollar to US Dollar exchange rate declining.
On the other side of the pairing, the US Dollar could be more immediately affected by the finalised University of Michigan consumer sentiment figure for February.
This data will be released shortly and if it shows rising confidence as forecast, a small advance could take place in the USD/AUD exchange rate.
That said, if negative responses to the steel tariff continue to come out then USD traders may steer clear of the US currency in the meantime.