The upsurge of AUD despite expectations from the Reserve Bank of Australia to maintain a wait-and-see approach at today’s
monetary policy meeting after a series of three rate cuts appears quite surprising, especially considering last week trading session
where the Aussie could barely benefit from positive comments from the US and China on the outcome of an interim phase one deal. Meanwhile, the
latest announcements by the US administration to impose tariffs on steel and aluminum from Argentina and Brazil under the ground of a
massive and voluntary devaluation of the currency, probably to force both countries to reduce or halt exports of agricultural products
(e.g. soybean) to China, followed by threats of punitive duties on French imports, do not bode well for commodity currencies.

Now that the hands are starting to unbind with the prospect of a potential agreement with Beijing potentially frozen until after 2020 US
elections as Chinese authorities exert growing retaliation threats after saying it will publish a list of unreliable US companies that
should face sanctions, Washington appears willing to target its key trading partners, and particularly Europe. The statement by the US
Trade Representative Office that it could implement $2.4 billion in tariffs on French consumer products after it adopted a digital
services tax on July 24, 2019, when similar measures could be taken against Austria, Italy and Turkey, may well tarnish the current
optimistic view that global economic growth should stabilize in 2020. Bearing in mind that the escalation of trade tensions between the two
Atlantic neighbors may well include sanctions against the EU car industry, the Reserve Bank of Australia may well be forced to revise its
projections downwards, as it seems to lack arguments for not cutting rates deeper so far.

By Vincent Mivelaz

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