Australian Dollar Retreats Against the Pound as Trump Threatens US-China Trade War

Australian Dollar Retreats Against the Pound as Trump Threatens US-China Trade War

The pound gained 0.8 percent against the Australian dollar during Friday’s trading as risk sentiment soured. US president Donald Trump threatened new tariffs on China following the coronavirus pandemic. Trump stated his trade deal with China would take a back seat as his government looked at retaliatory actions over the crisis. The president now faces a deep recession in an election year and his ratings have already begun to slide. He has escalated the attack on China, focussing on China’s mishandling of the crisis and citing that he’d seen evidence that confirmed the virus originated in a Wuhan lab. The tension between the world’s two largest economies has caused the ‘risk based’ Aussie dollar to give up some of its gains.

The Australian dollar had enjoyed an extended rally as the global coronavirus cases and death toll appeared to be flattening. Australia has less than 7,000 coronavirus cases and less than 100 deaths, with several states reporting no new infections in recent days. Australia’s success in the handling of the crisis has led prime minister Scott Morrison to announce that some restrictions will be relaxed this week. Like their Kiwi neighbours, Australia has benefitted from the quick reaction of the government in applying lockdown measures.

The Reserve Bank of Australia is expected to hold interest rates and not add any further stimulus at its next meeting. A positive message from the RBA could boost the dollar however fears over the global economy may push the dollar back.

Brexit and Prospect of Further Lockdown Weigh on the Pound

Brexit concerns and the prospect of the UK government extending the current lockdown measures are limiting the pound from moving higher. Whilst UK prime minister Boris Johnson has confirmed the UK is past its coronavirus peak, the UK has one of the highest death tolls, and the government is conscious about lifting the current restrictions too early, through fear of a second wave of the virus.

The current lockdown ends on May 7 and most anticipate Boris will announce the next steps in the coming days. On one hand, pressure is growing from businesses as the economy slides and on the other hand, fear of a return to high infection levels and his own personal experience may sway Boris to extending the current lockdown. If the virus is not fully contained, around 70 per cent of the public would rather see the lockdown stay in place.

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