The Australian dollar is struggling and traded down to a low of 0.7455 against the US dollar overnight.
“That’s the lowest level we’ve seen (for the Aussie) in three months,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
He added the Aussie continues to struggle “under the weight of expectations the Reserve Bank of Australia (RBA) may be the only major central bank to retain an easing bias and as the commodity bloc suffers under changed sentiment flowing from the Trump administration’s nascent trade war.”
McKenna pointed out the trade war from Washington is of particular import to the Aussie dollar.
He said, “While the Canadian dollar and Mexican peso are the most directly affected by the application of Tariffs on Canadian Lumber and the administration’s mooted plan to withdraw from NAFTA, it seems that the Aussie and Kiwi are being caught in the backwash because of what it potentially means for global trade.”
Indeed the Kiwi, in particular, is likely suffering from President Trump’s focus on dairy, McKenna said.
At the moment, it looks like it might be the Canadian dairy farmers who have raised his ire.
“But based on the price action of the Kiwi and the Aussie dollar, there appears to be a sense by forex traders that this focus on trade could ratchet up and take in other nations as well.”
He added this may be one of the reasons why the usually positive backdrop of increased risk appetite hasn’t helped the Aussie and Kiwi in the way that it usually would.
Equally though in the Aussie dollar specific sense the inflation data yesterday was a sign that the RBA could be the only major central bank which retains an easing bias this year.
According to McKenna, inflation wasn’t really poor enough yesterday in a headline sense to knock the Aussie off its perch the way it has.
“But if you break down the data line by line, item by item you get a sense that aggregate demand in the domestic economy is not that strong. I’m a strong believer that inflation comes from pricing power and pricing power comes from either monopolistic style power or solid underlying demand.
One thing worth noting for the RBA and the economy.
“The Australian dollar weakness is perfect. That’s because it can add stimulus to the economy in a way that doesn’t goose housing prices or borrowing the way rate cuts might right now,”
“So, don’t expect the RBA to fight this. Indeed, they may even encourage the weakness if they get the opportunity,” McKenna said.
In the meantime, the Mexican peso has had a rough week so far.
It has weakened materially in the wake of the Trump administration’s signals that it is again looking closely at its NAFTA trade partners.
That is after making a low at 18.46 – just a tick above the post-November low – on Monday USDMXN is currently trading at 19.179. That a loss for the peso of 3.89% against the US dollar in the space of just three days.
“Clearly the catalyst to this move has been the Trump administration’s decision to slap Lumber tariffs of 20% on Canadian wood. But the big spike in USDMXN overnight, which saw it move from an open around 18.85 and trade up to a high of 19.30,” McKenna said.
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