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Australia's dollar is leading the losers on Tuesday.
The Australian dollar has fallen against all its major currency peers amidst rising concerns for the global economic growth outlook.
Analysts say the fears about growth stem from comments from the latest round of brinksmanship between China and the U.S. as they front up ahead of a month-end meeting between President Donald Trump and Xi Jinping.
China sparked today's market selloff after imposing curbs on five U.S. entities of Hanwha Ocean Co., one of South Korea's biggest shipbuilders.
"AUD weakness stands out," says a daily currency market note from HSBC. "Although not directly involved in trade tensions, Australia’s close economic proximity to China is likely behind the move."
The U.S. Treasury Secretary, Scott Bessent, stirred the pot, accusing China of trying to hurt the world’s economy by imposing export restrictions on rare earth minerals.
"We consider the U.S.‑China tensions have room to escalate further," says Samara Hammoud, FX strategist at Commonwealth Bank of Australia.
Adding to the dour tone is the ongoing U.S. government shutdown; Polymarket betting odds now place a 69% chance on the shutdown lasting 30 days or more, which implies building economic risks.
"This has caused a broad sell-off in energy prices. Brent crude is lower by more than 1.6%, this slide has caused it to drop below $63.00 per barrel. Heating oil and natural gas have also slumped this morning, and iron ore is down 1.3% as global growth concerns mix with concerns about a Chinese supply glut of the core ingredient for steel," says Kathleen Brook, analyst at XTB.
Australia's main foreign currency earner is iron ore, of which the lion's share is shipped to China. This is why the Aussie dollar is highly sensitive to sentiment stemming from developments regarding China, and the latest flare-up in the U.S.-China trade war is proving particularly negative for the currency.
Bessent said Chinese restrictions on rare earths were a sign of Chinese economic weakness and that their actions would slow down the world’s economy.
China meanwhile threatened the U.S. with further retaliatory measures.
Stocks and risk-sensitive assets, like AUD, recovered on Monday as investors welcomed weekend news that China and the U.S. were committed to negotiating a resolution to the latest impasse.
However, subsequent developments serve as a reminder that there is more jockeying to be done ahead of any deal, and this can keep nerves on edge and deliver further AUD weakness.
Looking at the key pairs:
The GBP/AUD exchange rate now looks set to cement itself above the 21-day moving average at 2.0456, signalling a shift in short-term direction from lower to higher.
EUR/AUD is seeing a similar trend shift as it trades at 1.7910, having been as low as 1.76 just last Thursday.
AUD/USD is coming under increasing pressure and a run down to the big support at 0.64 is clearly the objective for bears here.
Looking forward, Trump is expected to meet Xi at the APAC conference in South Korea.
"We expect the rhetoric could be ramped up ahead of this meeting, with both sides trying to gain leverage. This could trigger some volatility in risky assets in the coming days. However, investors may still hold out hope for a trade deal between China and the US, as it would ultimately be mutually beneficial for both sides," says Brooks.
"It could also unleash a mega Santa rally before the end of Q4," she adds.
A big relief-on rally into year-end would boost the Aussie and help it reclaim recently lost turf against the likes of GBP, EUR and USD.