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.
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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?
Like CFDs, when you trade margin foreign exchange (or ‘forex’ for short), you do not buy or sell the underlying asset (i.e physical currency). Instead, you are taking a position on the fluctuations of global currencies in pairs, such as the US Dollar and the Australian Dollar. You’re essentially predicting how the market for that country’s currency will move; either buying a currency which is referred to as going long, or selling a currency which is referred to as shorting.
Advantages of the Forex market
Forex is fast-paced and the returns can be significant. As with the stock market for example, you will be aiming to predict how currency values will fluctuate in response to international financial news and government policy changes. Many traders become adept at predicting the next movements of the foreign exchange market. Although there is often luck involved, it also involves a lot of skill and patience to monitor, manage and make decisions at the right time. Get it right, and you can reap the rewards.
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.
Trading Forex is a complex yet accessible investment method once you’re familiar with the basics. For a comprehensive and easy-to-understand overview of the basics of Forex and CFD trading, register and download our Guide Book for Forex Trading for free now.