The Australian dollar has now slumped for a 2nd straight day after comments from the White House that tariffs against China are a real possibility in the nearest future. This left investors fleeing riskier currencies such as the Aussie.
China is Australia’s biggest trading partner and any move directed towards the world’s 2nd largest economy are seen as negative for the Australian dollar, as it may lead to a slowdown in trading goods.
White House trade adviser Peter Navarro noted yesterday that countries such as China had been getting away with unfair trade practices for years and the time had come for the presidential administration to take a stance:
In the coming weeks, President Trump is going to have on his desk some recommendations.
This will be one of the many steps the president is going to courageously take in order to address unfair trade practices.
The Australian dollar took a hit last time around when US President Donald Trump announced tariffs on steel and aluminum, but this time the effect may prove bigger as the measures are directly targeted at China and further losses are likely on the cards.
Westpac senior currency analyst Sean Callow said:
The Australian dollar had been resilient during this month's tensions, suggesting that the very bullish global growth narrative is yet to be really shaken.
But should the US-driven trade tensions deepen in the months ahead, the Australian dollar is likely to be one of the currencies hardest hit, given Australia's current account deficits and its heavy reliance on China for commodity exports.
Another Trump advisor also made comments favoring a higher US dollar, which gave a boost to the greenback at the expense of other currencies and precious metals such as gold.
New economic advisor Larry Kudlow has already made his personal view clear, saying he “would buy King Dollar and sell gold”.