Looking ahead into 2019, the main risk to the value of the AUD remains the Trade War escalation between the US and China.
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If trade tensions do ease between the world’s leading economies, it is largely considered that the AUD will recover some of its losses. 2018 was a tough year for the AUD, with the slide in oil prices and a drop off in commodity markets, in particular the price of iron ore and other export materials, weighing heavily on its value.
China has recently said that it is ‘now ready’ to start to work with the US in resolving the trade war. President Donald Trump has backed up this through his infamous twitter account, after a successful telephone call over the weekend.
Currently the trade war is on a 90 day truce to allow for talks to be negotiated properly. With interest rates unchanged down under from the 1.5% last cut in August 2016 and the US economy set for a cool down in 2019, I see no reason why if the trade tensions are resolved the Australian dollar may return as an investor’s choice.
Whilst the Australian dollar is likely to be mainly affected by external factors, internally the amount of household debt has been highlighted as a concern and something to watch through 2019. The last Reserve Bank of Australia announcement drew attention, highlighting that whilst the Australian economy is performing well, the drag on household consumption may hinge on the AUD’s value later on in the year if the banks become distressed.
There are no major economic data releases scheduled for the Australian Dollar as the markets ease themselves back from the Christmas break. I would largely expect the AUD to remain under pressure until more progress is made regarding the US China trade war. With Donald Trump nothing is a certainty though, so clients may want to take the volatility out of trading sooner rather than waiting, as I personally think that the path to resolving the trade war won’t be a quick one.