China Takes Aim At Australian Budget

Tensions between China and Australia have deteriorated yet again this week with China threatening to apply more economic sanctions against Australia over the bolstered defence spending outlined in the country’s latest federal budget this week. Australia has highlighted plans to pump more capital into its defensive infrastructure with a focus on funding for intelligence services. The budget also outlined plans to offer increased support to exporters struggling with the tariffs and restrictions applied by China over the last year.

China Considering Further Measures

In response to the new budget provisions, Chinese newspaper The Global Times (a government run paper) has hit back warning that Beijing will look to apply further sanctions against Australia. China has reportedly taken issue with Australia’s plans to pursue an “open and peaceful Indo-Pacific” which it sees as simply backing up the US military strategy in the region. The article also referenced another media report which suggests that Australia’s liquefied natural gas (LNG) could become the next export to fall under tariffs and restrictions from China.

Australia Will Be “Patient”

Speaking with CNBC this week, Australian Deputy PM said that the country will be “patient” in its attempts to alleviate tensions with China. This comes on the back of China last week announcing that it will suspend economic dialogue between the two nations “indefinitely”.McCormack went on to say: “We understand that we’ve got the world’s best products,” McCormack said. “I know our mining resources are valued right across the world … whether it’s coal, whether it’s iron ore … iron ore prices are very strong at the moment.” Interestingly, despite the tensions, the latest data shows that Chinese trade with Australia grew in April with imports rising by 49%. Exports to Australia also rose by 20%.

US Shows Support

In a show of solidarity, which will no doubt anger Beijing, the US administration this week confirmed its intentions to stand beside Australia. US Secretary of State Anthony Blinken said during a White House press conference "I reiterated that the United States will not leave Australia alone on the field, or maybe I should say alone on the pitch, in the face of economic coercion by China." Blinken went on to say: "And we've made clear to the PRC how such actions targeting our closest partners and allies will hinder improvements in our own relationship with China."

Technical Views

AUDCNH

AUDCNH has broken down below the rising trend line from December lows following the latest failure at the 5.0504 level. Price is now challenging the 4.9807 support. A break here would open the way for a test of the 4.9484 level next. With the MACD having turned bearish, the 4.8964 levels sits below that as the major downside target for bears. If 4.9807 holds, however, there is room for a further rotation higher within the recent range.

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