Australian Business Confidence and Conditions Fall – Australian Dollar (AUD) Exchange Rates Unperturbed
The Australian Dollar US Dollar (AUD/USD) exchange rate rallied on Tuesday, unperturbed by a notable drop in Australian business confidence and supported by news that China has vowed to open its markets to foreign trade.
According to National Australia Bank (NAB), business confidence fell sharply last month thanks to US President Donald Trump’s plans to apply tariffs on Chinese imports.
This resulted in a drop in the NAB business confidence reading from 9 to 7 in March, with the business conditions score similarly falling from 20 to 14.
This is still significantly higher than the historical average of 5.5%, however, and with negotiations between China and the US deescalating, the news had very little effect on the markets.
Beyond this, NAB’s Chief Economist, Alan Oster, asserted that he remains optimistic that the RBA will lift its official cash rate towards the end of the year, stating:
‘The strength in business conditions and leading indicators are consistent with stronger economic growth in coming quarters’.
This will, however, largely depend on the data flow, with wages and inflation liable to continue to take centre stage in deciding monetary policy.
China Vows to Lower Trade Barriers – Australian Dollar US Dollar (AUD/USD) Exchange Rate Surges
The big item today for both the Australian Dollar and the US Dollar is news that China has capitulated somewhat on their extreme trade policies, with President Xi Jinping announcing plans to lower China’s trade barriers.
This includes promises to lower the tariffs on automotive imports, become stricter on intellectual property theft and even set up free trade ports – overall, an upbeat statement that indicated a willingness to be a more open trading partner with the world.
The Chinese leader stated:
‘China does not seek a trade surplus. We have a genuine desire to increase imports and achieve greater balance of international payments under the current account’.
This is potentially a huge step in US/China trade negotiations, with investors now confident that a global trade war will be averted.
Surprisingly the Australian Dollar saw a bigger rise in demand as a result of this news, with commodity currencies in general benefitting from a resurgence in demand thanks to rising risk appetite amongst the markets.
US Inflation in the Spotlight – What can we Expect for the AUD/USD Exchange Rate?
Tomorrow will feature a range of notable US ecostats, with the two primary movers being the US consumer price inflation readings and the March Federal Open Market Committee (FOMC) meeting minutes.
Markets currently expect an accelerated rise in US inflation, and if this does indeed occur then the US Fed could be pushed closer to raising interest rates 4 times this year, rather than the initially planned 3.
On a similar note, the meeting minutes from the last rate decision could reveal similar sentiment –both events that could swing AUD/USD back into the US Dollar’s favour.