China announced on Wednesday that it will impose countermeasures against 12 American companies and their senior executives, as trade tensions between the world’s two biggest economies mount.
The retaliatory measures will include freezing movable, immovable, and other types of assets in China.
This comes in retaliation to the White House announcement on May 14, stating that the US will hike tariffs on Chinese chips and electric vehicles.
Reports are crossing the wires now that many of those tariffs will be effective from 1 August. Further, it is reportedly said that there will be public comments on new China tariffs, with June 18 as the deadline.
Reuters cited that the US Trade Representative (USTR) released details on tariff codes for specific products, the amount of increased tariff and the timing of the increase.
Key takeaways
Any exclusions granted from new Chinese tariffs will be effective through May 31, 2025.
USTR Seeks public comment on whether tariffs on facemasks, medical gloves, syringes and needles need to be higher than proposed.
Market reaction
Following these headlines, AUD/USD is testing lows near 0.6650, down 0.09% on the day. The pair has erased earlier gains to turn negative, at the time of writing.
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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