Brexit and US/China Trade War the key factors on GBP/AUD

Why is the RBA keeping interest rates on hold?

US/China Trade War – Is a truce in sight?

The US-China trade war is having a knock on effect on the Australian economy due Australia’s heavy reliance on China purchasing it’s goods and services.

Donald Trump has been in talks with Chinese President, Xi Jinping this week to discuss trade relations and it seems his threats of a huge tariff increase may have done the job.

Trump stated before negotiations that he we was willing to impose $200bln worth of tariffs on Chinese imports, up to 25% from 10%. Trump had stated it was “highly unlikely” the tariffs would not be put in place despite China’s pleas.

It seem this threat did the trick however. The US and China are now exploring a trade pact that would halt further tariffs through Spring in exchange for new talks. There could be a trade pact if Beijing looks at major changes to it’s current economic policies.

The talks are due to commence tomorrow at the G20 summit in Buenos Aires. The key points that the US wish address are protection for intellectual property, and subsidies to state-owned enterprises.

Be wary of thinking this will be a straight forward process. I think this trade war is far from over and could be prolonged. If this is the case expect the Australian dollar to remain fragile with few changes form the Reserve Bank of Australia (RBA) on rates.

Brexit – The key Driver on GBP/AUD

Let us not forget Brexit, it’s likely to remain the key driver on GBP/AUD. A lot will hinge on the Parliamentary vote on 11th December on whether May’s current Brexit deal will get the green light. I think that the most likely outcome will be that the deal will not be passed and May will need to go back with amendments despite Brussels stating they are not willing to make any changes. And so the saga continues.

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