Global issues to drive Australian dollar

3 July, 2018

The Australian dollar is set for tough times according to a growing army of analysts with a number of Geo political events poised to see investors exit riskier currencies in favor of safer assets.

The currency is now expected to head down towards the US72c level whereas 3 months ago a rise to US75c was on the cards, but with a possible trade war brewing between the world’s 2 biggest economies the Aussie dollar is set to once again fall out of favour.

China is Australia’s biggest trading partner and any further escalation in their standoff with the US over trade tariffs is likely to hit the Australian economy.

"Small, open economies are clearly at particular risk if the trade war continues to escalate, regardless of where the epicentre of the war sits, and the portents are not constructive," said ANZ's chief economist Richard Yetsenga.

"Of course we are worried about a trade dispute. The three largest economies in the world have imposed tariffs on each other, some are already talking about non-tariff measures, and other economies such as India and Canada have responded." he added.

There are also unconfirmed reports from US intelligence that North Korea is continuing to develop their nuclear weapons program in defiance of the agreement last month reached by US President Donald Trump and North Korean leader Kim Jong Un at a summit in Singapore.

This threatens to blow the whole deal apart, which would be a major blow to the riskier currencies such as the Australian dollar, that have garnered some support as the threat of nuclear war subsided.

One of the allegations being levelled is that North Korea is finishing construction of nuclear warheads among other things at the Chemical Material Institute in the city of Hamhung, which can only mean one thing according to some reporters.

"The Chemical Materials Institute seems like they have one function, and that's pumping out parts for their missile program," said David Schmerler, a research associate at MIIS.

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