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    Trumps Impact On The Aussie Dollar

    April 21 marked the first 100 days of President Trump’s time in the Oval Office, and since his first day the world has been looking to his policy initiatives – and his Twitter feed – to predict how worldwide currencies will respond. To complement our recent video on the topic, let’s take a look at the potential implications of Trump’s latest policy changes and plans on the Australian dollar.
     

    Changes in Trade


    President Trump’s protectionist stance is becoming clear in many of his intended and implemented changes in policy. His proposed Border Revenue Tax would be imposed on imports bought into the US at what is estimated to be around 10-15%. While this would encourage internal manufacture and purchases, it would also tend to increase the cost of goods and inflation within the US. The Federal Reserve would likely in turn raise interest rates aggressively to offset this, which in turn would strengthen the US dollar.

    In February Trump accused China, Germany and Japan of manipulating their currencies for trade advantage, later to take a step back in that position regarding China. We’ve seen how the US can impact on countries’ monetary policies with sanctions in the past, so this approach could see pressure on the European Central Bank to tighten their policies to avoid creating a currency war.

    The US withdrawal from the Trans-Pacific Partnership speaks strongly to Trump’s protectionist stance but doesn’t run much risk of impacting the Aussie dollar significantly as we already have trade agreements in place with so many of the countries within the TPP. Similarly, the renegotiation of NAFTA would be unlikely to considerably affect the Australia currency or those of our biggest trading partners.
     

    Changes in Fiscal Policy


    One of the biggest plans Trump has is to announce $1.6 trillion of infrastructure spending within the US. Along with a boost in wage growth and inflation within the US, the higher demand for iron ore and other supplies for this infrastructure would likely see a rise in commodity prices.

    Plans to repatriate around $2.6 trillion of corporate funds would pump money into the economy and further encourage inflation and subsequently a rise in interest rates. Federal Reserve vice chair Stanley Fischer recently deemed it unlikely that the Dodd-Frank financial regulation legislation would be appealed, however if this did go ahead it could lead to eased capital requirements; Setting conditions that could be reminiscent of the lead-up to the last GFC. 
     

    The factor of uncertainty


    So far Trump has fulfilled just 10 of his 38 changes that he promised would be in place after 100 days, with well-documented struggles to have his new health care bill passed. His statements and actions are keeping watchers uncertain and unsettled. This uncertainty is not ideal for a risk currency such as the Aussie dollar. It has always been a good carry trade, and there’s every possibility it may become a good buy if commodity prices increase and the RBA increases interest rates. However, as with his first 100 days, all eyes will be on President Trump to see what does and does not eventuate. 

    To keep informed on market insights relating to worldwide and the latest trading strategies, remember to register for our regular webinars.

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    Introduction for CFD trading
    For those new to the world of trading Forex, the concepts involved can seem too complex to ever understand. In fact, with a few basic terms and definitions you can quickly begin to understand CFD trading on the foreign exchange market including the risks and benefits. 

    What is a CFD?

    A Contract for Difference, or ‘CFD’ for short, is a leveraged derivative contract that allows you to speculate on a range of financial markets, such as currencies, shares, commodities and indices. By trading CFDs you can gain exposure to both rising and falling markets without actually owning the underlying asset. Put simply, if a CFD trader believes the price of the underlying asset (e.g. gold) will appreciate in value, then they would take a buy position on gold. Alternatively, if they were of the view that the price will depreciate in value, then they would take a sell position on gold. When trading CFDs with ForexCT, the contracts that you trade are over-the-counter (OTC); meaning they are a private contract between you and us and not through an exchange. The leveraged nature of CFDs means that you may use a relatively small amount of money to control a larger position value; the rest being covered by the CFD provider.

     
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    What are the risks?

    We won’t beat around the bush – Forex trading is high risk. That’s exactly why it’s so appealing to many traders. You can make (or lose) a relatively large sum in a short period of time, particularly as Forex offers much higher leverage than other markets which essentially amplifies both your gains and your losses. You can put a number of methods in place to restrict the fallout from any losses, including stop loss orders and limit orders. ForexCT provides free guaranteed stop losses on every single Forex trade through our platform.
     
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