After months of uncertainty due to the United States and China trade war, the Australian Dollar has been in a peculiar state. Very few people were considering it the stable currency it once was due to its direct connection to the trade routes between these two large countries.
Australia does indeed contribute quite a lot to the trade relations of the United States and China, mainly through the export of services as well as goods such as the energy sector, but the latest tariffs were simply too much for the country to handle.
As relations are heated up more and more, Australian investors are seeing less and less potential in the local markets simply due to outgoing investments rather than Foreign Direct Investment.
Deficit and surplus
It’s said that most of the funds that were funneling through from China are now staying within its borders as the government’s plan to outlast the US in this economic tussle.
Some of the largest growing Australian industries have come to a crashing halt due to decreased stock prices, fewer avenues to access foreign markets as well as a direct decrease in consumer spending due to inflation rates that AUD had to go through within the last week.
The most important industries which are currently recognized as energy and mining, are slowly starting to slow down as manufacturing stalls in both China and the United States, therefore the country is trying to now rely on its vast list of pokies from their online gaming websites.
The gaming industry was thrust into a position of great responsibility as it’s starting to commit around 40% of its annual revenue, which it largely gets from foreign markets to the local economy. Billions of dollars are spent to retain positions within the government and continue operations as a hope to help the industry survive. Dozens of Australian brands have started to move to places like Macau or Malta, therefore limiting an inflow of foreign currencies such as the USD, EUR, and even the Chinese Yuan.
All of this quickly correlated to a surplus of AUD with these companies, and the decrease of demand on the currency. The massive selloffs of company shares also facilitated cashouts in AUD and conversion to USD immediately, thus hurting the currency even more.
Will the world survive this trade war?
The US-China trade war has sparked controversy after controversy due to its heated longevity. There seems to be no end in sight unless one of the players gives ground. And considering how both of them are major world economic powers, that’s definitely nowhere near to happening.
Such uncertainties are leading local market experts to believe that there will be a world economic recession in the nearest future, particularly in 2020 which will make the 2008 crisis seem like a momentary correction.
Because of this, people are even more predisposed to selling their assets in favor of holding on to cash which they will keep in the banks in order to combat inflation, but the reality is that. Selling off these assets and adding supply to an already surplus market is going to be like pouring gasoline on a raging fire.
The banks won’t be able to help too much with staying above inflation during a recession, but it will still be better than losing 70% through assets like stocks.
The primary focus in Australia is quickly switching to currencies and real estate, as they’ve proven to be safe havens in the past.
Whether or not this will be a good decision from Australian investors remains to be seen, but there’s no real alternative to be seen at this point.