The Australian dollar tumbles as China escalates the trade war

Ian Waldie/Getty Images
  • The Australian dollar fell heavily on Monday as China announced retaliatory tariffs on US imports.
  • There’s some speculation the Chinese move won’t be the last in the trade war.
  • Chinese stocks and the Chinese yuan were hit hard during the session. They’ll likely be influential on broader investor sentiment in Asia on Tuesday.
  • NAB will release its Australian Business Confidence survey for April. The employment measure, in particular, could be of interest to both the RBA and traders.

The Australian dollar was hit hard on Monday, falling heavily against all major crosses as China announced retaliatory tariffs on US imports.

Here’s the scoreboard at 7am AEST on Tuesday.

AUD/USD 0.6944 , -0.0056 , -0.80%
AUD/JPY 75.9 , -0.85 , -1.11%
AUD/CNH 4.7992 , 0.0156 , 0.33%
AUD/EUR 0.6185 , -0.0033 , -0.53%
AUD/GBP 0.5358 , -0.0018 , -0.33%
AUD/NZD 1.0568 , -0.0024 , -0.23%
AUD/CAD 0.9361 , -0.0024 , -0.26%

After lifting to as high as .7002 in early trade, the AUD/USD losses gradually built as the session progressed, eventually seeing the pair decline to .6941, the lowest level since early January this year.

The Aussie was undermined by a series of tweets from US President Donald Trump during the session, adding to investor nerves after the US increased tariffs on $US200 billion worth of Chinese imports on Friday.

“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries,” Trump wrote in one tweet. “You had a great deal, almost completed, & you backed out!”

Trump added in a separate tweet that “China should not retaliate” to the US move, warning that it “will only get worse!”

Shortly after that threat, China’s finance ministry announced that it will increase existing tariffs on around $US60 billion worth of US imports from June 1, sparking a wave of risk aversion across financial markets.

A tweet from Hu Xijin, editor-in-chief at China’s Global Times newspaper, did nothing to appease investor concerns.

“China may stop purchasing US agricultural products and energy, reduce Boeing orders and restrict US service trade with China. Many Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically,” Hu warned.

According to CNBC, the publication has close connections to the Chinese government, and tends to be more outspoken in contrast to other state media.

The escalation in trade tensions weighed on stocks and commodities, and led to widespread buying in perceived safe haven assets such as US treasuries, gold and the Japanese yen and Swiss franc.

As an asset often used as a proxy for sentiment towards the Chinese economy, the Aussie dollar was hit particularly hard, mirroring the performance from the offshore traded Chinese yuan, or CNH, that fell to the lowest level against the greenback since late last year.

Investing.comAUD/USD Hourly Chart

As was the case on Monday, trade headlines and movements in Chinese financial markets, especially the yuan, will continue to dictate how the Aussie dollar will fare during Tuesday’s trading session.

While developments on the trade front will continue to dictate direction, there is a bit of economic data on the calendar that may briefly interest traders.

Domestically, National Australia Bank will release its Australian Business Confidence survey for April at 11.30am AEST.

“On many occasions the RBA has emphasised the role of the NAB survey in understanding the current tension between weak growth and a strong labour market,” said Rodrigo Catril, senior FX strategist at NAB.

“Thus we believe the Bank and the market will be closely watching the details in the Survey’s April edition.”

Elsewhere, other highlights include New Zealand migration data, industrial production from the Eurozone, ZEW investor sentiment and CPI from Germany, UK unemployment along with trade prices and the latest NFIB small business optimism survey from the United States.

On the central bank speakers’ front, US FOMC members Esther George and Mary Daly are scheduled to deliver speeches.

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