AUD/USD falls to near 0.6150 after Trump sets tariffs
- AUD/USD weakens to around 0.6155 in Monday’s early Asian session, down 0.95% on the day.
- The White House planned 25% tariffs on Mexico, Canada; 10% on China from Tuesday.
- The rising expectation of RBA rate cuts weighs on the Aussie.
The AUD/USD pair attracts some sellers to near 0.6155 during the early Asian session on Monday. The weakening of the Australian Dollar (AUD) is pressured by US President Donald Trump’s announcement to hit China, Canada, and Mexico with tariffs. Later on Monday, China’s Caixin Manufacturing Purchasing Managers Index (PMI) for January will be released.
On Saturday, the White House said that it will impose tariffs of 25% on goods coming from Canada and Mexico while hitting China with a 10% levy, starting Tuesday, per Bloomberg. Canada, Mexico and China vowed to respond to sweeping new tariffs on their exports to the US. China’s foreign ministry noted tariffs will inevitably affect future cooperation on drug control. Trump tariff threats exert some selling pressure on China-proxy Aussie as China is a major trading partner of Australia.
Furthermore, rising bets that the Reserve Bank of Australia (RBA) will cut the interest rate might contribute to the AUD’s downside. According to the Bloomberg survey on Friday, Twenty of 23 respondents expect the RBA will lower its cash rate to 4.10% on February 18. Financial markets are now pricing in nearly 90% odds of a reduction.
Traders brace for the release of China’s January Caixin Manufacturing PMI, which is due later on Monday. If the report shows a stronger-than-expected outcome, this could help limit the AUD’s losses.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
