Excited about Friday? The Aussie dollar certainly isn’t. At 2.01pm today, the US will slap a 25% tariff on USD200billion worth of Chinese exports into The States. Today also saw the Reserve Bank of Australia release their quarterly statement on monetary policy. Strap yourself in, it’s going to be a wild ride. In the calm before the storm, one Aussie dollar will buy you:
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US/ China trade war: it’s tariff time
This morning President Trump was heard saying “I’m here to get a spray tan and slap China with some tariffs, and I’m almost finished my tan…” Just kidding, he probably didn’t say that, but he is about to RKO* China with some hefty tariffs.
After weeks of being told that the trade talks were progressing nicely, last Friday Trump seemingly tweeted out of nowhere
that he was sick of China delays and, as a result, was ready to increase the tariffs on US $200billion worth of Chinese exports to the USA from 10% to 25%. Despite delegates from Beijing flying to Washington for talks on Thursday and Friday this week, Trump is still pulling the trigger on the tariffs because China had “broke (sic) the deal”.
China’s Commerce Ministry spokesman fired back, disputing Trump’s words by stating that the country “is credible and honours its word”. Whatever that means. Trump also announced that he had received a “beautiful letter” from President Xi Jinping. Hopefully, this letter can spark something that finally ends the uncertainty around these negotiations and we can all move forward.
This whole situation has spelt bad news for the Aussie dollar, which has proven very sensitive to the progress of the talks. Our strong trade ties with China mean a blow to the Chinese economy will have ripple effects on the Aussie economy and AUD. Hence, when Trump sent out his tweet last Friday the Aussie dollar saw a sharp decline.
Reserve Bank of Australia (RBA) Statement release.
After the RBA chose to keep Australian interest rates on hold on Tuesday, markets have been eagerly awaiting the corresponding Statement on Monetary Policy.
Not only did it provide more clarification on the RBA’s stance towards future interest rate cuts, but it also included updated forecasts on Gross Domestic Product (GDP) growth, inflation and unemployment.
As expected, the report highlighted that the Australian economy has slowed and that inflation remains low. Subdue household income growth is impacting consumer spending, despite the 5% unemployment rate. The statement said, “The near-term outlook for consumption growth has been revised lower because weaker housing market conditions and income growth are likely to continue to drag on spending.”
In other words, the Australian economy is slowing down and the effects are rippling out. Australian shares were trading higher following the release, so fingers crossed the Aussie dollar doesn’t see any fallout.
Sit tight over the weekend, who knows what next week will bring for our little Aussie Dollar.
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Definitions for those of us playing at home:
A bad-ass wrestling move where you annihilate your opponent. It was made famous by Randal Keith Orton. See below:
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