- Dollar Strength
- Souring U.S- China Relations
- Declining Exports
AUD/USD retreat from one-month highs continues to gather steam as the U.S dollar continues to strengthen across the board. The AUD has been on an impressive run in recent weeks in response to the easing of lockdown restrictions instituted to curb the coronavirus spread. Escalating tensions between the U.S and China is the latest tailwind that threatens to erase gains that AUD has made in recent weeks
The AUD/USD pair has retracted from one-month highs of $0.6607 as a showdown between Beijing and Washington continues to fuel demand for safe-haven assets such as the greenback. The pair has already dropped to lows of $0.6525 as the Australian economy remains vulnerable to a sensitive economic environment.
China is Australia’s biggest trading partner. A standstill in the Chinese economy fuelled by tension by the U.S tends to have a ripple effect on the export-dependent Australian economy. The value of Australian exports has declined in recent months in the aftermath of the COVID-19 pandemic
While demand for the country’s resource commodities remained’ strong, exports shrunk by 12% in April, all but taking a toll on the export-dependent economy. A decline in exports led to further weakness in the Australian dollar.
The COVID-19 pandemic has further fuelled weakness in the AUD against the U.S Dollar. Prime Minister Scott Morrison is posed to discuss the state of the economy in the wake of the pandemic. The easing of lockdown restrictions should fuel further strength in the AUD.
However, Australia’s move to call for investigations along other countries over Beijing mishandling of the pandemic threatens to sour tensions between the two trading partners. Tensions between Australia and China are the last thing that the AUD needs if it is to bounce back after the recent pullback against the dollar.
Standing in the way of AUD/USD powering high is escalating tensions between the U.S and China over Beijing, which has forced traders to rush to safe-haven leading to greenback strengthening.