Australian dollar hits 10-year low
08 August 2019
The prospect of fresh US tariffs of 10% on US$300 billion worth of Chinese imports, due to take effect on 1 September, has raised global tensions as the US-China trade ‘arm wrestle’ escalates.
The recent announcement has rattled US and European stock and currency markets. In particular, the Chinese yuan (CNY) and Australian dollar (AUD) have been pressured (or managed in the case of China) to their lowest levels in over ten years.
To this point, the downward trend of the Australian dollar has supported exports overseas. However, the broader implications of global trade tensions are increasingly creating concerns for the health of the Australian and global economy. The Reserve Bank of Australia (RBA) applied consecutive rate cuts in June and July and developing trade tensions may lead to further reductions to stimulate consumer and business confidence. On Tuesday, the Australian dollar was trading at US67.5¢, the lowest level since the Global Financial Crisis rocked the currency in late 2008 and into the early part of 2009.
The People’s Bank of China each day sets a rate for the yuan, ensuring a level of government control over the exchange rate. However, since the announcement of new tariffs, the CNY/USD rate moved below the sensitive seven-to-one dollar level for the first time since 2008, in a step that some industry commentators say is a direct response to the ongoing trade dispute. A weaker yuan will help offset the impact of the US tariffs, as Chinese goods become more competitive for overseas importers.
The outcomes of the US-China trade tussle remain a huge uncertainty and will continue to be so until a clear resolution is put forward. As it stands, the weaker Australian dollar will lend support to Australian red meat exports, as global demand holds up. However, if a tipping point in the trade war is reached and further damage caused to the global economy, a depreciating Australian dollar might not be sufficient to offset the broader implications for trade.
© Meat & Livestock Australia Limited, 2019
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