The Australian dollar has seen better days.
As the US–China trade tensions continue to grow, the dollar has suffered its third largest decline of 2018.
‘The Australian dollar is often seen as a liquid proxy option for emerging market exposure given the strong Australian economic links with China,’ said NAB’s senior foreign exchange strategist Rodrigo Catril.
‘Thus it is not surprising to see the Australian declining amid the current trade-driven global growth concerns.
‘Add to that a small spike in the VIX index [+7.8pc to 13.63] … along with commodity declines from oil to copper … the London Metal Exchange Index [-2.5pc] … and gold, and you have the perfect recipe for a soft Australian dollar.’
And that’s just what we got, a soft Australian dollar. One that fell 1.23% to a monthly low of US73.66 cents.
‘We remain of the view that trade tensions are likely to get worse before they get better and as such we still see more downside risk for the Australian dollar.’
This finance expert explains a potential crash in value for the Aussie dollar. Get survival tips here (free).
Is the Aussie dollar affected by China?
The dollar is highly linked and dependent on the Chinese financial markets because of our deep ties and trading relationship with China. The majority of Australia’s industrial commodity exports, such as iron ore and copper, are destined for China.
The Australian dollar also dropped to 55.8 British pence, 63.1 euro cents and 82.5 Japanese yen, capping off a day to forget.
The Australian dollar has been trading at roughly one-year lows since the middle of June as investors have increased fears about how the United States handles itself with other countries.
‘The trade situation is worrisome but nothing more is going to happen right away. This story may recede in people’s consciousness while current stories capture people’s interests, particularly earnings,’ said John Carey, portfolio manager at Amundi Pioneer Asset Management in Boston.
‘People are looking for some fairly strong earnings, and there’s certainly potential for disappointment.’
At the moment, we are living in a time of uncertainty, there are a lot of unknowns.
There are always going to be victims when that happens, today it’s the Australian dollar.
If the dollar continues on this trend, don’t be surprised by it. This has been a reoccurring theme of late. As to what happens next for the dollar, anyone’s guess could be on the money, but it’s not looking good.
PS: Australia could be headed for a recession in 2018. But there’s a few steps you can take now to protect your family’s wealth. Find out more here.