The US has announced that Australia will now accept American beef, lifting a long-standing ban. This ban was in place because of biosecurity concerns, which kept US beef out of Australia for years. Even with this new agreement, Australian beef will still incur a 10% tariff due to US policies. Australian Prime Minister Albanese has said he won’t impose tariffs on US products, as that could lead to higher inflation in Australia.

Australian Priorities In Beef Agreement

This announcement reveals more about the Australian government’s priorities than the beef deal itself. Prime Minister Albanese’s choice to accept US tariffs to combat inflation shows that keeping prices stable is his main focus. This indicates that the Reserve Bank of Australia (RBA) has government backing to maintain strict policies, which could help strengthen the Australian dollar. The central bank has kept its cash rate at 4.35%, a 12-year high, because the latest consumer price index (CPI) inflation is at 3.6%, well above the target range. His decision not to retaliate with tariffs removes an obstacle that could complicate the RBA’s efforts to control inflation. This reinforces our expectation that interest rates in Australia will stay higher for a longer period, which is generally good news for the currency.

Implications For Traders

For traders in derivatives, this signals a more stable outlook for the AUD/USD exchange rate in the short term. The rate has been around 0.66. The beef agreement is too small to significantly affect trade balances; Australia is a major beef exporter, sending over 250,000 tonnes in the first quarter of 2024 alone, making US imports minor. So, we would caution against making sharp trades based on news from the former president. The 10% tariff presents a risk for Australian companies in the metals and materials sectors that rely on exports. Past experiences during trade disputes from 2018-2019 showed that tariff announcements can cause considerable market volatility and impact the currencies of affected nations. While this long-term risk is real, the immediate focus from the government is to maintain a stable economic environment. Our strategy for the next few weeks is to consider selling short-term volatility in AUD/USD. The government’s clear position should help minimize knee-jerk reactions to small trade announcements. However, it may be wise to hedge against larger tariff risks by buying long-term call options on volatility indices or put options on the Australian dollar. Create your live VT Markets account and start trading now.

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