ING: Australian dollar can become victim of politics
The Australian dollar has returned a significant part of losses incurred this year, but ING currency strategists believe that the potential for further recovery looks limited, and downside risks are growing.
ING draws attention to the fact that so far China's measures, such as the imposition of duties on barley and beef from Australia, have not had a significant effect and were a kind of message. However, now that there is talk among market participants about the possibility of creating barriers to coal imports into China, the bulls have a cause for concern. Analysts and traders believe that the world's second largest coal consumer will take action to support national producers by tightening import regulations and will probably start with Australian thermal coal suppliers. Experts do not think that the supply will be completely interrupted, one for the Australian economy, which faced the worst recession in the last thirty years, the blow will be tangible - 23% of all Australian coal is exported to China.
ING's strategists point out that a complete ban on coal imports from Australia is not yet an issue, but in case of growing tension in the relationship such a scenario looks possible. This would involve Australia engaging in a trade war with China, raising concerns about restrictions on other vital Australian exports, particularly iron ore and even LNG. With this development, AUD/USD can be expected to return to 0.60, while the risk of an aggravation of the relationship between Australia and China gives reasons to expect AUD to fall behind other cyclical currencies. ING keeps the AUD/USD forecast for the second quarter at 0.64.