Aussie stronger as de-escalation expected in US-China trade war

The Australian dollar strengthen on Wednesday as Washington has expressed confidence in de-escalation in a trade war with China. The AUD is a proxy play of the Chinese economy, given the significant reliance of the Australian economy on its exports to China.

On Tuesday, US President Donald Trump signaled that discussions with China are going well, adding that he thinks they will reach a deal.

Trump said that tariffs on Beijing “would not be as high as 145%, but they wouldn’t be zero”. Market participants took Trump’s comments as a meaningful step towards closing a deal with China in a scenario which would be a win-win for both the largest powerhouses of the world.

Meanwhile, China said it is open to negotiating a bilateral trade agreement with respect and mutual trust.

Beijing has urged the US to stop making threats if it wants a deal.

“This is not the right way to deal with China, and it is not feasible,” Chinese ministry spokesperson Guo Jiakun said, adding that the US, “should conduct dialogue with China on the basis of equality and mutual benefit.”

On the US dollar front, the DXY Dollar Index has surrendered its initial gains and fell back to near 99.00 even though fears of an intense trade war between the US and China have eased and Trump has backed away market expectations that he can sack Federal Reserve Chair Jerome Powell.

(Source: OANDA)