Of the external threats, the situation in China is particularly important. For while relations between the two countries have improved in recent years, which could help to lift Australian exports, China could see particularly adverse economic implications from the incoming Trump administration in the US, should the new president choose to go through with his threat to lift tariffs on China to 60%.

In some senses, China seems to have got its defence in first by cutting rates and announcing a large fiscal package, but the implications for Australia from Trump’s tariff threats are still notable, perhaps especially for the Australian dollar. On the domestic front, the personal tax cuts announced some months ago do not appear to have led to a marked uptick in spending.

Indeed, with mortgage costs still elevated, thanks to the persistence of high policy rates, it seems very likely that households will use any increase in after-tax income to bolster savings. The Reserve Bank noted recently that, with some 80% or so of households on flexible mortgages, rate hikes quickly feed through to household finances in a way that’s not the same as other G10 countries where there is a much greater incidence of fixedrate mortgages.

This seems to be part of the reason why the Reserve Bank did not lift policy rates as high as many others during the tightening cycle. The Bank’s approach has still led to a fall in inflation and the RBA predicts more declines ahead. The Bank’s latest projections suggest that inflation will sustainably come into the 2%- 3% target range in 2026 given that some bounce-back in headline inflation is envisaged next year.

The key, as it is in many countries, seems to be wages. The last three quarters have seen wages rise by 0.8% in quarterly terms and, for Q3, the annual rate is down to 3.5%, having seemingly peaked at 4.3% in Q4 last year. While the peaking of wage growth is undoubtedly good news, the RBA would like to see wage growth down to the 3% region before feeling more comfortable about sustainably lower inflation – and cuts in policy rates. In the Standard Bank’s view, the RBA should be able to start cutting rates in the first quarter of next year. That’s a little sooner that current market pricing, where the first 25-bps rate cut is almost fully priced in for May next year.

In theory, we might anticipate that this reticence on the part of the RBA to cut rates so far would lift the Australian dollar, but this has not happened. This might be understandable when it comes to the US dollar. After all, risk aversion has been elevated, especially around the US election, and this could have provided the dollar with support and so counterbalanced any weakness stemming from Fed rate cuts. But even against similarly ‘higher risk’ currencies, such as the NZ dollar, the Australian dollar has been unable to make substantial gains.

For while the RBNZ has cut rates by a total of 75-bps in recent months, the NZ dollar has not collapsed against the aussie. To some extent, this could reflect a factor we mentioned earlier: China. For while the Chinese renminbi might be seen by many as the currency that is most at risk from a second Trump term, the PBoC’s active involvement in the FX market could stop, or severely limit, the renminbi’s fall. If so, frustrated US dollar bulls could aim for the currencies of countries that are heavily reliant on China, and where central bank control of the FX market is not on a par with what we see for China.

While this thought process may put a number of Asian currencies in the firing line, the Standard Bank suspected that the Australian dollar would also be singled out for some rough treatment. In the end, of course, Trump’s bark might be worse than his bite, so, while we do see the Australian dollar falling as far as the 0.60 region in the coming months, for a decline of around 7.5% from current levels we’d anticipate some recovery for the aussie in the long haul as the ‘Trump trade’ starts to fade. This recovery should see the aussie rising to the 0.75-0.80 range, given time.