You are here

CURRENCIES

Aussie dollar falls, pound tanks on fresh trade fears

London

THE Australian dollar fell to a weekly low on Tuesday after the central bank opened the door to another cut in interest rates as early as February and other currencies also weakened due to a fading in trade-related euphoria.

In Britain, the pound tanked as Prime Minister Boris Johnson, emboldened by election victory, put the risk of a hard Brexit back on the table, saying he would make extending the transition period beyond 2020 illegal.

The Australian dollar lost 0.5 per cent to US$0.6844 after minutes of its December policy meeting showed the central bank's board was concerned that wage growth was too weak to revive either inflation or consumption.

Last week saw the apparent removal of the two main risks dominating global markets: a preliminary trade deal was reached between the US and China, and Mr Johnson won a majority in the election, promising to end uncertainty around the UK's departure from the European Union.

But by Tuesday, optimism was starting to subside, with the safe-haven Japanese yen up 0.1 per cent and the trade-exposed New Zealand dollar down 0.3 per cent, as investors cautiously waited for details of the agreement.

The deal, announced on Friday after more than two years of volatile negotiations between Washington and Beijing, will reduce US tariffs on Chinese goods in exchange for increased Chinese purchases of some US goods.

Fitch ratings agency said that the "Phase One" deal eased US-China tensions but that renewed escalation remains a significant risk, with the issue of technology posing an obstacle to full resolution.

"The Aussie is weaker on the back of the more dovish-than-expected RBA (Reserve Bank of Australia) minutes," said Valentin Marinov, head of G10 FX strategy at Credit Agricole. "That said, market expectations of a Phase One US-China trade deal could limit the currency's downside in the near term."

The drop in the Australian dollar and the pound boosted the greenback, with the US currency trading 0.1 per cent stronger against a basket of its rivals. Against the US dollar, the British currency fell more than one per cent to US$1.3155, erasing its post-election gains. The euro was up 1.2 per cent against the Brexit-startled pound and up 0.2 per cent against the US dollar at US$1.1162. REUTERS