- AUD/USD bounces back above 0.6400 as the US Dollar retreats ahead of trade talks between the US and China.
- US-China trade discussions will have a significant impact on the Australian Dollar.
- The Fed guided on Wednesday that officials are not in a hurry to lower interest rates.
The AUD/USD pair recovers initial losses and rises above the key level of 0.6400 during European trading hours on Friday. The Aussie pair bounces back as the US Dollar (USD) retreats from almost a month high posted earlier in the day, with investors turning cautious ahead of the United States (US)-China trade discussions over the weekend.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, turns upside down after facing selling pressure near 100.85.
Earlier this week, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer said that they will meet their Chinese counterparts in Switzerland on Saturday, aiming to de-escalate the trade war. The meeting between them is expected to be more about lowering additional duties imposed by both nations on each other, and not about negotiating a trade deal.
Signs of improving trade relations between the US and China would be favorable for both nations, given that the Asian giant is the second-largest exporter to the US.
Positive outcome from trade talks between worlds’ two largest powerhouses will also be favorable for the Australian Dollar (AUD), given the strong reliance of Australia on its exports to China.
Earlier in the day, the US Dollar performed strongly due to the announcement of the US-United Kingdom (UK) trade deal and guidance from the Federal Reserve (Fed) that there is no rush for interest rate cuts.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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