Australian Dollar rebounds as tariff threats ease
- The pair recovered after a weak opening near 0.6235.
- Investors shrugged off Trump’s tariff threats on China.
- Softer US Dollar data bolstered the Aussie rebound.
The Australian Dollar (AUD) bounces back strongly to near 0.6290 after a weak opening around 0.6235 on Monday. The AUD/USD pair attracts significant bids as investors shrug off fears linked to United States (US) President Donald Trump’s tariff threats on Chinese imports.
Markets will now focus on Jerome Powell’s testimony before the US Congress on Tuesday and inflation data from the US on Wednesday.
Daily digest market movers: Aussie recovers as risk sentiment shifts
- Over the weekend, President Trump threatened to raise 25% tariffs on steel and aluminum imports globally, but market participants now view these threats as a negotiation tactic.
- Accelerated Chinese Consumer Price Index (CPI) data for January surprised markets, with year-on-year growth at 0.5% (versus the expected 0.4%) and a monthly increase of 0.7%, reinforcing the view of the AUD as a proxy for the Chinese Yuan given Australia’s trade ties.
- Trump’s imposition of a 25% duty on imports from Canada and Mexico was delayed by a month, offering temporary relief and prompting a quick sell-off in the US Dollar. Meanwhile, a 10% tariff on Chinese imports remains, sparking fears of retaliatory measures from Beijing.
- Recent Q4 Consumer Price Index (CPI) figures in Australia show headline inflation at 2.5% YoY, down from 2.8%, and the trimmed mean CPI fell to a three-year low of 3.2%. These softer inflation figures have raised expectations of a 25 basis point rate cut by the Reserve Bank of Australia (RBA) in February which acts as a roof for the pair’s upside.
- Dovish hints on Tuesday’s testimony from Jerome Powell or weak CPI data from the US on Wednesday might add momentum to the pair.
AUD/USD technical outlook: Bulls build momentum above 20-day SMA
The AUD/USD pair rose by 0.67% to 0.6290 on Monday, rebounding from a weak opening near 0.6235. Technical indicators suggest a promising short-term recovery: the pair surged past the 20-day Simple Moving Average (SMA) at approximately 0.6230, establishing a key support level.
The Relative Strength Index (RSI) is at 58, indicating growing bullish momentum, while the MACD histogram prints flat green bars, reflecting a gradual build in upward pressure.
Although the market remains cautious due to lingering tariff uncertainties and mixed US data, the recent rebound suggests that the Aussie could continue to benefit if key resistance levels, particularly around 0.6300 and 0.6400, are breached.
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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