The Australian dollar has seen a volatile week following the recent escalation in the US China trade war. Last week saw US President Donald Trump deliver on his promise to increase existing tariffs on Chinese imports totalling $200 billion. This is extremely relevant for the Aussie dollar considering the Australian economy relies heavily on its biggest trading partner China.

Currency Pair% Change (Month)Difference on £200,000
GBPAUD3.0%AUD $9,900

The Australian dollar as a commodity currency is heavily impacted by global trade. China has since retaliated by imposing tariffs of $60 billion on American goods leading to further volatility for the Aussie although it has found some support after Donald Trump stated that trade talks are “going to be very successful”.

The Australian dollar could see a recovery if an agreement can still be reached. The increase in this latest round of tariffs increasing from 10% to 25% will take effect only when those goods arrive in the US, which will usually take about a month. It still leaves a reasonable period to focus minds and any agreement on trade would be seen as positive for the Australian dollar. The risk for the Aussie stems from the possibility of a full-blown global trade war which could see steep tariffs across many borders globally. It has been reported in a worst-case scenario that the US could impose tariffs of up to 35% on all Chinese goods as well as 25% on cars from elsewhere across the world.

UK election on December 12th, investors uncertain

Political uncertainty for GBP/AUD

Australia faces a volatile period ahead with the general election later this week. Elections can create volatility for the domestic currency as the outcome can always throw up some surprises. This election has seen huge financing like never seen before for some campaigns in particular Clive Palmer heading up the United Australia Party (UAP).

Meanwhile the UK faces European elections 23rd May which normally wouldn’t raise too much concern for the currency markets. However, amidst the continuing Brexit debate in Britain these EU elections have suddenly become extremely politicised with voters expected to turn away from the two main parties in vast numbers.

A significant protest vote for the Liberal Democrats or newly formed Brexit Party could help forge new direction in British politics. A strong win for the Brexit Party could see rates for GBP to AUD weaken.

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