AUD falls to 3.5 year low
On Tuesday, the Australian dollar has slid to its lowest level since February 2016, reaching 0.7085 against the greenback. Even though the intensifying U.S.-China trade conflict has been weighting significantly on the Aussie, it is not the only factor. Indeed, as highlighted by September’s Westpac consumer confidence index that slid 3% from last month, Australian are turning more and more pessimistic. The recent decision from three of the four largest lenders to increase mortgage rate, persistent pressure on household budgets as well as political instability.
On the political side, the centre-right movement could lose its parliamentary majority, as it will face a by-election on October 20 following Malcom Turnbull’s resignation from parliament last month. Given the mounting popular dissatisfaction generated by the political turmoil, voters will be tempted to punish the ruling conservative coalition.
With the interest rate differential between the US and Australia that continues to narrow and Trump’s strong tendency to add fuel to the fire, which could only make negotiations with China more difficult, the Australian dollar is not out of the wood yet.
Loonie likes NAFTA
Canadian dollar bulls are celebrating. Renewed optimism on NAFTA has pushed USD/CAD lower, as US-Canada trade talks resumed yesterday. Both US President Trump and Canadian Foreign Minister Chrystia Freeland confirmed that negotiations are on track, with both ready to make concessions. USD/CAD continues to weaken amid stronger loonie against major currency pairs. The pair is heading along 1.3035 in the short-term.
Canadian negotiators appear willing to provide restricted access to its domestic dairy market in exchange for a broadening of the trade dispute settlement mechanism, along with cultural protection of Canadian media firms and finally steel and aluminium tariffs. Time is short: an agreement must be reached by end September, as the Trump administration will have to deliver a finalized agreement to Congress, including bilateral (with Mexico only) or trilateral terms, if agreement is found. Political support is at stake. Canadian PM Trudeau’s party strongly relies on Ontario and Quebec, where most dairy farmers are. Trump’s Republicans could face a reversal in November elections if no deal is settled.
