• Joel

AUD Rally at Risk as China Readies Further Aussie Trade Restrictions

Amid a marked improvement in market risk appetite over the past two days, AUDUSD has rallied to the mid-0.65s from below 0.6400. 

Covid-19 vaccine optimism, a very dovish sounding Fed Chair Jerome Powell and a bold EU Recovery Fund proposal from the French and Germans (which includes a proposal for joint EU debt, aka. Coronabonds) are the main things behind to market’s recent risk asset rally. 

However, the ongoing increase in US/China tensions poses a threat to this rally, to which AUD is particularly vulnerable, given that Australia is currently going through its very own trade spat with China. 

China is considering targeting more Australian exports including wine and dairy, according to people familiar with the matter, in what would be a dramatic deterioration in ties as the key trading partners spar over the coronavirus outbreak, reported Bloomberg overnight. 

The report continued; Chinese officials have drawn up a list of potential goods also including seafood, oatmeal and fruit that could be subject to stricter quality checks, anti-dumping probes, tariffs or customs delays, the people said, asking not to be identified as the discussions are private. State media could also encourage consumer boycotts, they said, adding a final decision on the measures had not been made.

For reference, Australia which is the world’s most-China dependent developed economy (China is Australia’s largest export destination), has angered China by calling for an independent investigation into the origins of the pandemic (which would likely reveal Chinese government incompetence and or corruption). 

In recent weeks, China has hit Australia with tariffs on its Barley exports and has banned imports of certain types of Australian meat (each BIG Australian exports to China, so a big blow to the Aussie economy). 

AUD has largely shrugged off this spat thus far, preferring instead to trade off of global themes of optimism and pessimism. However, should Chinese/Australian tensions continue to rise, AUD will become increasingly at risk!



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