How will the G-20 reaction to China’s activity affect the AUD/USD and Canadian Stocks? It may be too early to tell, but the trend is currently heading up. If Russia and China decide to impose further sanctions on Western companies, then the potential costs will likely become greater. In addition, with the Euro gaining ground against the dollar, major European stocks are seen as a reliable store of value.
If sanctions are imposed, then China may decide to close their currency to imports. This would further weaken the Chinese economy and potential trade partners. As China suffers from a currency meltdown, it may choose to not expand its economy at all.
Russia and the United States are trading openly with each other and may try to enforce sanctions on each other as well. As the World Trade Organization continues to punish countries for violating trade agreements, countries that trade with the US may find themselves in breach of WTO rules. Expect more sanctions on the US dollar and those involved in trading with the US dollar.
It seems unlikely that China will cave into such demands. If the US decides to suspend trade with China, then the Chinese economy may suffer. If we see a continuation of China’s decline then perhaps this could bring the AUD/USD down slightly.
However, this trade dispute will have more downside than upside. If the US decides to go to war with China, then the risk of a conflict will increase. All sides will be facing economic and social turmoil as they attempt to deal with the current crisis.
“Geopolitics” appears to be a bigger factor in decisions like these than economics. The US may choose to go to war with China based on geopolitical issues or politics, economics, or both.
Russia and China may be starting to prepare for another large trade dispute. It may be an indicator that they may be seeking to do the same with the United States.
Due to the increasing influence of Russia and China, the exchange rate may need to be tightened to protect the exchange rate. In addition, investors may need to pay more attention to the AUD/USD, and Canadian Stocks.
It will be interesting to see how the World Trade Organization rules on Russia and China’s trade dispute. There may be a case for imposing tariffs on imports to the US if the US decides to suspend trade with China, Russia, or both.
Currently, China is just starting to re-balance the economy away from the country’s resource-based economy and towards manufacturing. If China has significant manufacturing abilities, the next few years could be very profitable for the AUD/USD and Canadian Stocks.
Is the US ready to declare war on China over the recent trade disputes? In the past, the US and Russia had traded strong words, but it appears that they may be looking to avoid a full scale war. We will have to wait and see.