Australian Dollar trades lower above 0.6200 as Trump imposes additional tariffs on China
- The Aussie pair sees mild losses on Tuesday, trading in the 0.6200 zone during the American session.
- Selling pressure looms as President Trump announces an extra 10% tariff on China, compounding February’s similar levy.
- The pair records a fresh losing streak amid a negative outlook despite the US Dollar’s current weakness failing to lift the Aussie.
The AUD/USD pair is down around 0.1% near 0.6220 on Tuesday. This comes even as the US Dollar extends its downside, revisiting multi-week lows near 106.15 on the US Dollar Index (DXY).
President Donald Trump’s newly added 10% tariff on China clouds the Aussie’s prospects despite an anticipated rise in Australian Retail Sales data. Meanwhile, investors’ dovish Federal Reserve (Fed) bets, spurred by a decline in United States Personal Spending, fail to provide the Aussie with a solid footing.
Daily digest market movers: Tariffs weigh on the Aussie as traders eye Fed dovish stance
- President Trump’s decision to impose an additional 10% tariff on China intensifies concerns over global growth, especially as China is Australia’s leading export market. The extra levies follow the 10% duty introduced in February, heightening fear that Beijing may retaliate.
- Trump also threatening North American partners contributes to a cautious risk backdrop. Concerns linger that further US tariffs or retaliation from China could undermine global demand and put pressure on export-driven currencies like the AUD.
- Australian Retail Sales are expected to show a moderate increase, offering some cushion for the Aussie.
- Nonetheless, the Australian Dollar’s upside remains capped by slow growth prospects and uncertainty surrounding the next RBA move.
- Mounting market bets on a June Fed rate cut reflect a softer US Personal Spending figure, which stokes recession worries. The US Dollar, however, has seen renewed downside despite risk aversion, leaving the Aussie unable to capitalize on the Greenback’s overall fragility.
Technical analysis: Pair’s decline stalls, negative outlook stays
The AUD/USD pair declined by about 0.38% to a lower region around 0.6200 during Tuesday’s American session with selling pressure abating only slightly once the US Dollar lost steam. Notably, the pair has suffered a new losing streak, keeping the outlook negative from last week.
The Relative Strength Index (RSI) currently lies in a lower band, declining near the 30s, an indication of ongoing bearish momentum. The Moving Average Convergence Divergence (MACD) prints flat red bars, suggesting sellers remain dominant for now.
Having slipped under its 20-day Simple Moving Average (SMA), the Aussie remains vulnerable unless it reclaims that threshold. Immediate support stands near 0.6150, whereas any rebound would likely face resistance near the recent swing high within 0.6250–0.6270.
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
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
