The Australian dollar hits its lowest level in nearly a decade in yesterday’s trading session after a threat by US President Donald Trump to slap fresh tariffs on Chinese imports sent shockwaves through the world economy.
President Trump said that the United States will impose additional 10 per cent tariffs on $US300 billion worth of Chinese imports coming into the US from September 1, adding to the 25 per cent tariffs on $US250 billion in imports already in place.
The new tariffs will basically now cover all Chinese imports such as smartphones and computers with medical supplies being one of he only items left out.
This is bad news for the Australian economy as China is Australia’s biggest trading partner so any issues with the world’s second largest economy is going to hit Australia hard.
The latest interest rate decision from the Federal reserve didn’t help the Australian dollar’s cause as well as many in the market had been expecting a 50 point basis cut so when a 25 point basis cut arrived, the Aussie dollar was sold off.
The following monetary statement from Fed President Jerome Powell was less dovish than most analysts expected which also piled pressure on the currency.
“Powell said this isn’t the start of a long series of rate cuts though he added that he didn’t say 'it's just one rate cut' either," said Richard Franulovich, head of FX strategy at Westpac Bank.
"That hints at more insurance [cuts], though a lot less than what rate markets have priced in." he added.