It is no secret that the Australian economy is closely connected with China with the latter being its biggest trading partner but just how close these 2 economies are intertwined is becoming obvious with the recent tumble of the Australian dollar.
The Chinese economy is now beginning to feel the effects of the trade wars started by US President Donald Trump who slapped a range of tariffs on the country’d goods and with the threat of more to come the Aussie dollar might be in for more problems
“We’re No. 1 on the list of collateral damage in who really has a lot to lose if the China story goes south,” said Sally Auld, JPMorgan Chase & Co.’s head of fixed-income and currency strategy for Australia.
“We’re a small, open economy that’s highly leveraged to trade and to China so anything that creates difficulty with global trade is bad for us by definition. It’s pretty fundamental to our economic well-being.” She added.
Just how much further the Australian dollar can fall is anybody’s guess but one analyst thinks that a dive to around US60c is not out of the question and especially if commodity prices such as Iron ore, Australia’s biggest export begin to retreat. “The Aussie has been regarded as the major currency risk proxy for the APAC region and specifically China for a while now, and for good reason,” said Nick Twidale, chief operating officer at Rakuten Securities
“As global trade tensions persist and indeed increase, and more specifically tensions between China and the U.S., then investors will continue to look to sell the Aussie dollar.” He added.
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