Scenarios for the Aussie Dollar Amid Renewed Trade Tensions
The US-China trade spat is back in the driver's seat for the Aussie dollar, with the currency's value tied to developments in Sino-American relationships.
We discuss four potential scenarios for AUD/USD based on these developments. Further escalation will negatively impact AUD, but a re-run of April's chaos could lead to a higher AUD/USD.
The current USD rally and rapid re-escalation in US-China trade tensions have been unexpected, with AUD/USD trading below 0.6550. Until markets are reassured that a repeat of April's tariffs is not imminent, the Aussie dollar will struggle to benefit from its constructive fundamentals.
In a major trade war, the fundamentals would deteriorate: the Reserve Bank of Australia (RBA) would need to cut more, growth would falter, and commodity prices would suffer.
Until markets are reassured we’re not heading for a repeat of April’s mammoth US tariffs on China, the Aussie dollar will struggle to benefit from its otherwise constructive fundamentals.
Author's summary: The Aussie dollar's value is tied to US-China trade developments.
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