AUD/USD has started the trading week with losses. Currently, the pair is trading at 0.6969, down 0.46% on the day. On the fundamentals front, Australian home loans disappointed with a decline of 2.5%, well below the estimate of 2.2%. This marked the fourth decline in five releases. The downward trend continued for NAB business confidence, which fell to zero in March. There are no U.S. data releases on Monday. On Tuesday, Australia posts Westpac consumer sentiment and the wage price index.

The slowdown in the Chinese economy has damaged the Australian economy, so an escalation in the global does not bode well for the Australian dollar. The trade war between the U.S. and China escalated last week, as the U.S. slapped China with new tariffs on Friday. The move raised tariffs on some $200 billion in Chinese goods from 10% to 25%. China is yet to retaliate with counter tariffs on U.S. goods, but has allowed the Chinese yuan to fall to its lowest level in four months. A lower yuan makes Chinese exports more competitive and will help cushion the effect of the new U.S. tariffs.

Despite the dramatic rise in tariffs and the Chinese promise to retaliate, talks between the sides continue, with officials scheduled to meet in Beijing. The new tariffs do not apply to Chinese goods that left port prior to May 10, affording a 2-week window for negotiators before the tariffs take effect. The escalation in tensions has shelved a meeting between President Trump and Chinese President Xi, but the two leaders could meet at the G-20 summit in Japan in June.

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The RBA released its quarterly policy statement on Thursday, sending a pessimistic message to the markets. The bank downgraded its GDP forecast to 2.75%, down from 3.0% in February. Inflation remains low, and the RBA rate statement, released on Tuesday, said that the labor market would have to improve before inflation could reach the bank’s target of 2.0%. The RBA has been dovish about the economic outlook, and thus surprised the markets when it did not lower the key interest rate last week. Despite the cloudy economic outlook, rate-setters are hopeful that the limping economy can rebound without the help of a rate cut.


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