Market Analysis

AUD: Iron Filings and a Lowe lowdown

On Friday, the US Commerce Department, headed by Wilbur Ross, recommended that President Trump impose heavy curbs on steel and aluminium imports from China and elsewhere. The proposed measures range from tariffs to quotas. One proposal was for a global tariff of at least 24 per cent on all steel imports from all countries, another was for a tariff of at least 53 per cent on all steel imports from twelve named countries, one of which is China. “If the final US decision affects China’s interests, China must take necessary measures to protect its own reasonable interests,” China’s Commerce Ministry said. If President Trump does choose to go down this path, the forex market will naturally seek to analyse what it might mean for currencies. The Australian dollar (AUDUSD, AUDJPY, EURAUD) might come under particular scrutiny given the scale of Australia’s iron ore and coking coal exports to China. Traders will also have noted the tone of Reserve Bank of Australia (RBA) Governor Philip Lowe at his appearance before the Australian Parliament’s Economics Committee last Friday. When asked about the AUD, Lowe said “I generally think about this in terms of the trade-weighted index, which averages across all the different currencies that we trade with.

On a trade-weighted basis, the Australian dollar is basically in the middle of the range that it has been in for the last couple of years. I think that is manageable.” But Lowe then said “as I have said to this committee before, I would prefer a lower currency at the moment than a higher currency, because a lower currency would mean stronger growth in jobs, probably, and we would be a bit more competitive. And it would push inflation up a little bit, which is kind of what we need. So, a lower dollar would be better than a higher one at the moment, but we are where we are.”

Written by Neal Kimberley, External Currency Analyst.