Aussie Declines As Trump Ups Ante Against China

Aussie Declines As Trump Ups Ante Against China
August 5, 2019

 

The Australian Dollar fell like a pack of cards against the greenback on Friday after the US President upped the ante by announcing fresh import tariffs on China and increasing the risk of another jolt to the world economy. The Aussie was unable to recover even with a sharp rise in the price of iron ore, which is the number one export commodity of Australia.

Iron ore hit $124 per ton last Thursday but fell sharply to close at about $112 per ton on Friday. That is still the highest traded price since 2014. However, analysts believe that the iron ore rally is in the final stage. Of late, most of the price rise has been due to natural disasters in Australia and Brazil, hampering mining operations and output. Barclays anticipates that iron ore prices will decline to an average of $70 per ton in 2020, down from the current level of about $120 per ton. In fact, Morningstar analysts anticipate iron ore prices to hit $41 by 2023.

In a note to clients, Barclays said, “We are approaching peak supply disruptions in iron ore. We are starting to see a clear supply response.”

The above statement implies that there would not be any more supply outages and shipments will likely increase in the months ahead. The sluggish demand for steel in China is also anticipated to weigh on prices. China contributes to roughly half of steel output in the world. According to UBS, Chinese steel inventories are increasing, suggesting that “demand may be starting to roll over.”

The weak outlook for iron ore did not allow the Aussie to rebound. In the meantime, through a tweet, President Trump announced that $300 billion of Chinese products shipped to the US would be slapped with an additional import duty of 10% from September 1st.  The US has already imposed 25% duty taxes on Chinese goods worth $250 billion.

Trump’s announcement not only triggered a selloff in the US dollar but also pushed down the risk-sensitive Aussie as its value is highly dependent on both commodity prices and investors’ risk appetite. In 2018, the world economy slowed down quickly, harming business confidence across the world, but specifically in manufacturing and trade-centered economies like the eurozone.

Trump’s announcement has come at a time when the Australian dollar is under pressure because the US Fed is perceived to be reluctant to offer the kind of stimulus anticipated by the financial markets. The gloomy iron ore outlook and Trump’s announcement are expected to keep the Aussie weak in the days to come.

Technically, the AUD/USD pair has broken the support at 0.7018. The next major support is expected only at 0.6420. Furthermore, the oscillator of the moving average also has a negative reading. As a result, we can expect the currency pair to move down in the short-term.

aud - technical analysis - 5th Aug 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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