The Australian dollar is broadly lower today. The currency began selling off sharply yesterday following news that the Trump administration is seeking to reduce the trade deficit with China by $100b per year. An article in Politico also suggested that the White House is looking to implement more tariffs against China. As China is the biggest destination for Australian exports, the Australian dollar is strongly correlated with China-sensitive assets (such as commodities) as a result. Looking at the Dow Jones Commodity Index (a broad measure of commodity prices), the index turned lower yesterday and is currently selling off today. The Australian dollar is weaker as a result. We expect the Australian dollar to weaken further if Trump implements tariffs aimed at China and takes additional measures to improve the US trade deficit. Our short-term outlook remains neutral, while our medium-term outlook remains bullish.
AUD/USD is down today and trading just above 0.7860. EUR/AUD is up slightly and trading above 1.5720. GBP/AUD is up and trading above 1.7740.
Looking at economic data relating to the Australian dollar this week, we'll see home lending and consumer confidence figures. Home loans (-1.1% vs. -0.1% expected) were below expectations. Investment lending for homes (1.1% vs. -2.6%) accelerated from previous figures, while NAB business confidence (9) met expectations. RBA Assistant Governor Bullock's speech did not address monetary policy. Westpac consumer confidence improved against previous figures (0.2% vs. -2.3% prior). RBA Assistant Governor Kent struck a hawkish tone, suggesting that good global growth may raise the outlook for inflation. He also said that there is no reason to raise rates in increments of only 25 basis points. Consumer inflation expectations (3.7%) were slightly higher than previous figures. Tomorrow, we'll hear from RBA Assistant Governor Debelle. Last week, Q4 GDP growth came in below expectations.