- AUD/USD continues to face downward pressure amid stalled US-China trade negotiations.
- Beijing is unlikely to ease tariffs ahead of the upcoming talks in Switzerland, fueling market uncertainty and weakening risk sentiment.
- President Trump has announced a “major” trade deal with the United Kingdom, although key tariffs will stay at 10%.
The AUD/USD pair recovers its daily losses, trading near 0.6400 during Friday's Asian session, following China trade balance data. However, the Australian Dollar (AUD) remains under pressure due to stalled progress in US-China trade negotiations. Given the close economic ties between Australia and China, any pressure on the Chinese economy tends to weigh on the AUD.
The trade balance came in at $96.18 billion, surpassing the expected $89 billion but slightly lower than the previous $102.63 billion. Exports grew by 8.1% year-on-year, beating the expected 1.9% but falling short of the prior 12.4%. Imports declined by 0.2% YoY, improving from the expected -5.9% and the previous -4.3%. Meanwhile, China’s trade surplus with the US for April stood at $20.46 billion, down from $27.6 billion in March.
In Chinese Yuan (CNY) terms, it stood at CNY 689.99 billion, reflecting a modest decline from the previous month's CNY 736.72 billion. Exports grew 9.3% year-on-year in April, compared to 13.5% in March. Imports increased by 0.8% YoY during the same period, reversing the previous decline of -3.5%.
According to the Global Times, citing the Chinese Embassy in the United States, Beijing is unlikely to reduce tariffs ahead of the upcoming talks in Switzerland. This adds to market uncertainty and dampens risk sentiment.
In the United States (US), President Donald Trump has adopted a firm stance on China's trade policy, following the appointment of a new envoy to Beijing. While there are discussions around tariff exemptions, the administration appears cautious, with Trump stating that they are "not looking for so many exemptions."
Meanwhile, China is reportedly considering a significant change to its real estate market—banning the pre-sale of homes and allowing only completed properties to be sold. This move, aimed at stabilizing the property sector, is part of a broader reform plan still under development. The regulation would apply to future land sales, excluding public housing, and local governments would have flexibility in implementation.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of currencies, is trading around 100.60, buoyed by strong US economic data and expectations of prolonged yield differentials. Initial optimism surrounding a US-UK trade agreement has faded, however, as it became clear that existing 10% tariffs will remain in place.
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.
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