- AUD/USD draws support from risk appetite, clings to 0.6300 early Monday.
- Only 20% and not 145% US tariffs on China’s semiconductors and electronics provide some relief to markets.
- The focus remains on Chinese trade data and Fedspeak later for fresh trading incentives.
AUD/USD is holding the three-day recovery momentum from five-year lows on Monday at the start of the week, posting small gains near 0.6300.
AUD/USD cheers risk appetite
The latest uptick in the pair is linked to the extension of risk-on sentiment from Friday’s American session into early Asian trades this Monday. Markets breath a sigh of relief, digesting the weekend’s news of less steep tariffs announced by US President Donald Trump late Sunday on Chinese imports of semiconductors and the electronics supply chain.
Squashing the news of tariffs exemption, Trump clarified that these products will be subject to the existing 20% tariffs on fentanyl and not the 145% levies.
Higher US equity futures reflect the positive risk tone, with the S&P 500 futures gaining nearly 0.80% so far. However, it remains to be seen if the Aussie pair sustains the upswing as the US Dollar could also see a tepid turnaround from three-year lows on improving risk profile.
The US Dollar hit a fresh three-year low against its major currency rivals after the US-China trade war deepened on Friday. China retaliated by raising additional tariffs on US goods to 125% from 84% but mentioned ignoring further US responses.
China’s remark also consoles the markets, supporting the risk-sensitive Aussie.
Looking ahead, the pair awaits the Chinese trade data, with key focus on its exports amid the trade war. Although the full impact of US tariffs will not be known but the data could provide some fresh trading incentives in the major.
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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