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Chinese state media has threatened to punish Australia over political tensions by replacing imports of Australian beef and wine with US imports, notes Sean Callow, Research Analyst at Westpac.

Key Quotes

“We can only hope that this does not end up causing damage to Australian exports on the scale of the punishment of South Korea over the THAAD missile defence system.”

“Specific factors are mostly in play in EM, as they are in Italy, where equities and bonds have been hit by political confusion. Such strains are a weight on AUD/USD but otherwise, the Aussie’s foundations look decent. Australia’s Q1 GDP growth (6/6) could be close to 3%yr, fitting the RBA’s ongoing optimism. And the wary tone in the FOMC minutes has cooled US$ yield support, at least for now.”