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AUTOMOBILE TARIFFS LOOM ON THE HORIZON

Sentiment-linked assets such as the Australian and New Zealand Dollar may suffer soon amid fears of a new automobile tariff that may trigger retaliations. President Donald Trump announced Wednesday that he is exploring new auto tariffs as a way to promote domestic production and protect jobs. This comes as part of his broader protectionist initiatives that has characterized his administration’s economic policies.

ESCALATING TRADE WAR AHEAD?

The automobile tariffs would likely further strain relations with China and escalate trade tensions with a Japan, a major automobile exporter. The EU would almost without a doubt impose retaliatory tariffs, considering the Union’s largest economy – Germany – is one of the world’s largest automobile exporters. Other noteworthy auto exporters include Belgium, Italy and France.

AUTO TARIFFS LIKELY TO FUEL GLOBAL RISK AVERSION

Throughout 2018, the US-led trade wars has been a key factor which has exerted downward pressure on cycle-sensitive assets. The Australian and New Zealand Dollar have been on a steady decline outlooks for global growth remain uncertain. This also against the backdrop of a hawkish Fed that has also been a key factor contributing to global risk aversion.

If new automobile tariffs are imposed, the probability of retaliation is fairly high. The Australian and New Zealand Dollar along with the Euro would likely decline as risk aversion tightens its grip. Emerging markets would likely suffer as well. Risk-off assets such as the Japanese Yen and Swiss Franc would likely outperform their risk-loving counterparts.

Trade Wars Weighing on the Aussie and Kiwi

Risk Aversion Boosting Japanese Yen and Swiss Franc