The Australian dollar is under pressure as trade war fears flare again

  • The Australian dollar fell heavily against most major crosses on Thursday
  • Aussie rebounded on news the US will introduce new tariffs on steel and aluminium imports
  • NAB: A potential trade war is negative for economies such as Australia

The Australian dollar is under pressure in late trade on Thursday, losing ground against all major crosses except for the US dollar.

News that the US will impose new tariffs on steel and aluminium imports has sparked renewed concern among traders about the potential for a global trade war, a situation that many believe will harm the commodity-linked Aussie.

Here’s the scoreboard as at 8am AEDT.

AUD/USD 0.7755 , -0.0006 , -0.08%
AUD/JPY 82.38 , -0.41 , -0.50%
AUD/CNH 4.9235 , 0.0107 , 0.22%
AUD/EUR 0.6321 , -0.0043 , -0.68%
AUD/GBP 0.5628 , -0.0011 , -0.20%
AUD/NZD 1.0691 , -0.0067 , -0.62%
AUD/CAD 0.9947 , -0.0012 , -0.12%

After opening the session at .7761, the AUD/USD fell heavily in Asia on the back of weakness in stocks and a soft business capital expenditure report for the December quarter, eventually sliding to as low as .7714 in Europe, leaving it at the lowest level this year.

However, that weakness was all but reversed as North American trade kicked off, helped by a less-hawkish tone from US Federal Reserve chair Jerome Powell in his appearance before the US Senate Banking Committee in Washington.

“US bond yields moved a little bit lower following slightly dovish comments from Fed Chair Powell before his Senate appearance,” said Rodrigo Catril, currency strategist at the National Australia Bank.

“The Fed Chair said that he sees no signs the US economy is overheating even as the outlook for growth strengthens and the labour market tightens, adding that he didn’t see ‘any strong evidence yet of a decisive move up in wages'”.

Contributing to further volatility, New York Fed president Bill Dudley said that “four rate rises in 2018 would still be gradual” in his opinion, doing little to diminish speculation that the Fed could hike rates faster this year than many currently expect.

Completing the wild session for the Aussie, news that the US will impose new tariffs on steel and aluminium imports had an immediate reaction across markets, initially seeing the Aussie tumble against the dollar before rebounding just as fast.

Just have a look at the 5-minute AUD/USD chart below as evidence of how wild the session was.

AUD/USD 5-Minute Chart

While the Aussie rebounded against the greenback as the latter weakened across the board, Catril’s not sure how long that may last.

“If Trump’s decision to impose tariffs triggers a retaliation by the US main trading partners, a trade war is not just a negative for risk assets, it is also a negative for small and open economies such as Australia,” he says.

“Thus, we wouldn’t be surprised to see the big dollar regaining its poise against currencies such as the AUD, CAD and NZD.”

Turning to the day ahead, there’s a few economic data releases of note, although it’s likely that they will play second fiddle to sentiment and any political statements made during the session in response to the US tariffs.

Japan will have a busy session with unemployment data, household spending and inflation figures from Tokyo all set to be released.

“The Tokyo CPI reading tends to be a good leading indicator for the national reading and after the big jump in the headline number in January, the market will be looking to see if Tokyo’s inflation continues to rise,” Catril says.

“Similarly subdued core inflation is another theme the market will be watching out for.”

Elsewhere, New Zealand will release consumer confidence and building permits data.

No major data releases are scheduled in Australia.

Other data highlights include German import prices, Eurozone producer prices and the University of Michigan consumer confidence survey in the US.

On the monetary policy front, Bank of England governor Mark Carney will also be in action.

Theresa May, UK Prime Minister, will also deliver a speech on the state of Brexit negotiations.

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