US Markets

BUZZ-COMMENT-Geopolitics might break the AUD-CNY chain

Credit: REUTERS/Daniel Munoz

Trading the risk-sensitive Australian dollar has got more challenging as relations worsen between Australia and its top trade partner, China.

Trading the risk-sensitive Australian dollar has got more challenging as relations worsen between Australia and its top trade partner, China.

The AUD is often played as a liquid proxy for the yuan and for bets on China -- with last Friday's AUD/USD rise to a three-week high of 0.7243 influenced by the biggest one-day CNY percentage gain since 2005. However, this link may fray or snap if Australia-China trade ties deteriorate further.

On Friday, an Australian government source and two China-based cotton traders said China has ordered cotton mills to stop buying Australian supplies (China is the biggest buyer of Australian cotton).

That followed recent reports that China had quit accepting Australian coal (China is the biggest importer of Australian coal).

The China-Australia trade news helps explain why the AUD is on course for a 2% weekly decline against the U.S. dollar -- in contrast to the yuan, which ended Friday's domestic session at an 18-month closing high against the USD.

Related comment:

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(Robert Howard is a Reuters market analyst. The views expressed are his own)

((robert.howard@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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