Australian dollar at mercy of trade wars

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The Australian dollar has bounced back sharply over the last few trading sessions after reaching a 10 year low against its US counterpart but some say the rally may be short lived as the problems that drove the currency lower are still around.

"The Aussie's short-term momentum might be to the topside but the risks that drove the local currency to ten-year lows remain," said Steven Dooley, currency strategist at Western Union Business Solutions,

"In particular, any further slowdown in US or Chinese manufacturing could pressure the AUD." he added.

The existing problems facing the Australian dollar include the ongoing trade wars between the US and China which has caused havoc on the financial markets and hit countries like Australia which rely heavily on China to prop up their economy.

This situation has reeked havoc on the Australian dollar and if the problem isn’t resolved by the current meeting between Chinese President Xi Ping and US President Donald Trump, the situation may go from bad to worse for the Aussie.

“This is the first meeting since Trump and Xi agreed to a 90-day trade ceasefire on December 1,” said Ray Attrill, head of FX Strategy at the National Australia Bank 

“Both sides have until March 1 to make a deal, after which Trump has pledged to ramp up tariffs to 25 per cent on $US200 billion ($A280 billion) worth of Chinese imports.” He added.

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