Fears of Fallout from US-China Trade War Stabalize AUD/USD Exchange Rate
The Australian Dollar (AUD) has traded steadily against the US Dollar (USD) today, with neither currency dominating.
Demand for both currencies has fallen today following the news that China is seeking to impose fresh tariffs against the US in the ongoing trading conflict.
While this most directly affects US and Chinese trade, there are concerns among AUD traders that Australia is increasingly being drawn into the crossfire between the two nations.
Putting the latest development into an alarming context, Reserve Bank of Australia (RBA) Governor Philip Lowe recently warned that more US-China tariffs could prove ‘very damaging for the world economy.’
US Dollar to Australian Dollar (USD/AUD) Exchange Rate Standing Firm
The latest developments in the US-China trading conflict have seen China retaliate with a 25% tax on US imports; raising fears of further escalation in the weeks and months ahead.
There were USD/AUD exchange rate gains earlier on today, when traders responded positively to signs of a possible near-term US Fed interest rate hike.
Fed policymaker Thomas Barkin indicated that the US economy was strong enough to handle higher interest rates, stating:
‘It is difficult to argue that lower than normal [interest] rates are appropriate when unemployment is low and inflation is effectively at the Feds’ target.’
Australian Dollar to US Dollar Exchange Rate Forecast: Will AUD/USD Rally on RBA Statement?
The Australian Dollar to US Dollar (AUD/USD) exchange rate has a chance to rally before the weekend, with a Reserve Bank of Australia (RBA) monetary policy statement due out on Friday.
This release could cause an AUD/USD exchange rate rally if it’s positive on the economic outlook.
In the best-case scenario, the statement will indicate an intention to tighten monetary policy in 2019, and by extension increase the RBA interest rate.
Despite the potential for AUD/USD exchange rate gains on the RBA statement, any advance could be erased by Friday afternoon’s US inflation stats.
The US price growth readings are expected to show an acceleration in base inflation rates on the month and the year in July, which could boost USD demand.
Higher US inflation rates increase the pressure on the Federal Reserve to consider raising interest rates in response; USD traders are hoping for two more rate hikes this year.