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Rising trade war tension sends Aussie dollar tumbling

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The Australian dollar (AUD) experienced significant falls in June, finishing the month at 0.7400 against the greenback.

Economic data from Australia has been surprisingly good, with local unemployment numbers at a six-year low and better than expected GDP and retail sales data.

However, the AUD/USD has a strong correlation to the performance of the Chinese economy, so fears of a US/ China trade war and a poor month for the Shanghai and Shenzen stock markets weighed on the local currency.

Upcoming news

There has been a great deal of commentary that the AUD will fall further but it seems to have found some support at the 0.7325 level, which has been its base for the last 13 months.

Looking at the month ahead, China will release its GDP data on July 17. If there is some positive news out of China, the AUD could rally. Currency traders will also be watching for a change in sentiment regarding global trading conditions.

Markets are also closely watching announcements from Reserve Bank of Australia (RBA) for indications of when domestic interest rates will rise. While we are in a growth economy, high consumer debt levels and low wage growth mean rates are likely to remain on hold, at least for the remainder of 2018.

The case for hedging

While many importers are hedging the AUD against the USD, more now than ever there is a strong case for some optionality, to provide protection in the case of an AUD bounce.

On the export side, many of our clients are locking in forward orders to take advantage of the weaker AUD.

Consult the experts

The currency markets are full of risks and opportunities for trading SMEs. Managing these risks and trying to predict market movements can be complex and a distraction from day-to-day business activity.

It’s best to consult with a foreign exchange provider throughout the year who understands your industry and can provide relevant currency market insights and analysis, as well as gauge what market shocks may be around the corner. 

James Swerling is Account Manager at AFEX,a leading global payment and risk management solutions provider www.afex.com

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