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Talking Points:

  • G20 finance ministers will kick off their two-day meet in Argentina Monday
  • Trade and protectionism will be front and center after US steel tariffs were raised
  • If the global trade tone doesn’t lighten, risk-geared currencies could fall

Find out how IG’s retail foreign exchange traders are positioned on the Australian Dollar right now at the DailyFX Sentiment Page

Currencies like the Australian Dollar – with clear links to global growth and risk sentiment – could be in for a torrid week if a meeting of key finance ministers fails to cool prospects of global trade war.

Ministers from the Group of 20 will meet on Monday and Tuesday in Buenos Aires against a backdrop of increased US tariffs on steel and aluminum, the possibility of broader protection and threats of retaliation from both China and the European Union.

The US is also considering an increased defense of its corporate intellectual property from what Washington views as China’s depredations in this field. While the US has quite valid concerns, the world’s finance ministers seem very unsure to put it mildly that protectionism is the answer.

Moreover, the global economy is now seeing the strongest, broadest growth since the G20 was formalized in 2008 in the wake of financial crisis. A prolonged trade spat, let alone a trade war, would imperil that bounce-back and market watchers can expect to hear that message hammered home by various ministers.

Several, including those from host nation Argentina and also from Germany, have said that they will insist on language maintaining the importance of a rules-based international trade system in the final communique. The text will have to be agreed by all and will therefore be of more interest than usual.

For currencies, much will depend on US Treasury Secretary Steve Mnuchin’s tone. If he is strident in defense of tariffs, and if he leaves a strong impression that there are more in the pipeline, then the likes of the Australian Dollar could struggle, probably at the expense of perceived haven assets like the Japanese Yen and the US Dollar itself.

Australia’s currency is an obvious candidate as its success is often linked to investors’ take on global growth thanks to Australia’s vast raw material exports, particularly to China. Other commodity currencies such as the New Zealand and Canadian Dollars could also face some buffeting, although the latter might be shielded to some extent by Canada’s exemption from the US tariffs.

In any case the Australian Dollar heads into the meeting in a somewhat parlous state anyway, with the bottom of its current daily range under some threat.Should it give way, focus would be in December’s low in the 0.7502 area.

Australian Dollar Could Be At Risk If G20 Can't Cool Trade Fears

Resources for Traders

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!