The Australian dollar continues to climb in today’s trading session on the back of a proposed trade deal brokered by US president Donald Trump and Chinese President Xi Ping over the weekend but some analysts advise to proceed with caution and not to take things at face value.
Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank is one of those sceptics and doubts that any concrete steps that are long lasting will come out of the agreement between the 2 presidents which may see the jump in the Aussie dollar short lived.
“We do not expect the Chinese government to make large changes to its ‘Made in China 2025’ industrial plan,” said Mr Capurso
“The US and Chinese governments are unlikely to bridge their differences on trade. If no new trade deal is reached within 90 days, the US will increase the tariff rate on $US200 billion of imports from China from 10% to 25%.” He added.
The housing market in Australia, which is currently in a severe downturn in parts of the country is another factor likely to drive the fortunes of the Australian dollar in the nearest future.
In recent speeches, the Reserve Bank of Australia has mentioned that the likely next move for interest rates in Australia was up but if the property market continues to fall, they may have to drop these words as a rate cut may be needed to breathe some life back into the real estate market
“As long as the downturn in the housing market remains divorced from the broader economy, the Reserve Bank will continue to signal that rates are more likely to go up than down,” said CBA economist Gareth Aird.
“But the risk of a negative wealth effect impacting consumer spending is rising the longer the downturn in dwelling prices persists.” He added.
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