$A falls to two-and-a-half-year low

Jason Cadden
(Australian Associated Press)

 

The Australian dollar has fallen to its lowest level in over two-and-a-half years as investors worry about how a trade war between the US and China will impact the Australian economy.

The Aussie fell below 71 US cents in overnight trade for the second night in a row, and during the morning it fell as low as 70.94 US cents, down from 71.23 US cents at Tuesday’s local close.

BK Asset Management Managing Director of FX Strategy Kathy Lien says the Australian dollar is vulnerable to further falls because global trade tensions are not easing.

The World Trade Organization says its dispute settlement body will allow China to impose sanctions against the US for failing to abide by a WTO ruling on anti-dumping measures.

Last week, US President Donald Trump said he was ready to levy additional taxes on practically all Chinese imports, threatening duties on $US267 billion of goods, in addition to the planned tariffs on $US200 billion of Chinese products.

Ms Lien says if China retaliates, the increased trade tensions between the US and Australia’s largest trading partner, China, will put further downward pressure on the Aussie dollar.

“Not only does intensification of trade tensions boost risk aversion but it directly impacts the Chinese and hence Australian economy,” she said.

“Recent increases in mortgage rate hikes also pose a risk to spending and growth. We’ve already seen retail sales stagnate and service sector activity slow.”

Ms Lien says mortgage rate hikes, global trade tensions and weakness in the Chinese yuan could see the Australian dollar extend its slide below 70 US cents, especially if the US Federal Reserve hikes its interest rate again.

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