Australian Dollar defends its ground despite tariffs-related cautious market mood
- AUD/USD hovers above 0.6200, defending mild bids amid US tariff concerns and weak Chinese data.
- US PCE data showed no surprises, Fed remains cautious.
- RBA dovish bets continue to pressure the pair.
The Australian Dollar clings to mild gains on Friday, trading around 0.6215 after briefly touching a two-week low. The pair remains under pressure as US President Donald Trump reaffirmed plans to impose tariffs on Chinese imports, dampening risk sentiment.
Meanwhile, speculation over a potential rate cut by the Reserve Bank of Australia (RBA) in February and ongoing economic struggles in China continue to weigh on the Aussie.
Daily digest market movers: Aussie struggles on US tariffs concerns
- US confirms 25% tariffs on Canada and Mexico, 10% on China, effective February 1.
- US Dollar retreats as weak economic data erases weekly gains, pushing the DXY lower from its peak near 108.00.
- China’s PMI data disappoints with manufacturing contracting and services barely expanding, pressuring the Aussie.
- Iron ore prices hit yearly highs, offering mild support to AUD despite concerns over China’s weak demand.
- Markets consider that the RBA cutting rates in February is a done deal, which is also weakening the Aussie.
- On the US data front, the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation measure, rose by 0.3% MoM in December, following a 0.1% increase in November.
- On an annual basis, the PCE inflation rate increased to 2.6% from the previous month's 2.4%. The core PCE, which excludes food and energy prices, remained steady at 2.8% YoY for the third consecutive month.
- Markets are expecting no rate cut by the Fed in March.
Technical outlook: AUD/USD struggles for direction
AUD/USD remains confined within a narrow range, facing resistance near 0.6230 while holding support at 0.6200. The Relative Strength Index (RSI) stands at 42 in negative territory, reflecting a lack of clear directional momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints decreasing green bars, suggesting fading bullish strength.
Despite recent recovery attempts, the Aussie’s upside potential appears limited. A break below 0.6200 could trigger further losses, while a move above 0.6230 may offer short-term relief.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
