- AUD/USD trades in negative territory near 0.6280 in Thursday’s early Asian session.
- China will face a 54% tariff under the new Trump policy, weighing on the Aussie.
- China’s Caixin Services PMI climbed to 51.9 in March, stronger than expected.
The AUD/USD pair remains under selling pressure around 0.6280 during the early Asian session on Thursday. The Australian Dollar (AUD) pares losses against the Greenback after the stronger Chinese economic data. However, the upside might be limited as US President Donald Trump announced sweeping global reciprocal tariffs, prompting traders to turn cautious.
The Trump administration on Wednesday announced that the US will impose a 10% baseline tariff on all imports to the United States (USD) and slap additional duties on around 60 nations with the largest trade imbalances with the US. China was hit hard, facing a tariff of at least 54% on many goods. The policy announcement prompted traders to go into risk-off mode and exert some selling pressure on the Aussie as China is a major trading partner to Australia.
The encouraging Chinese economic released on Thursday could help limit the AUD’s losses. China’s Caixin Services Purchasing Managers Index (PMI) improved to 51.9 in March from 51.4 in February. This figure came in stronger than the 51.6 expected.
Data released by the Australian Bureau of Statistics on Thursday showed that the country’s trade surplus decreased to 2,968M MoM in February versus 5,600M expected and 5,156M (revised from 5,620M) in January. Meanwhile, Australia's Exports fell by 3.6% MoM in February from 0.8% (revised from 1.3%) seen a month earlier. Imports rose by 1.6% MoM in February, compared to a fall of 4.0% (revised from -0.3%) reported in January.
On the other hand, the concerns over the economic slowdown in the US might undermine the USD in the near term. Traders will keep an eye on the US weekly Initial Jobless Claims, the final S&P Global Services PMI, and the ISM Services PMI. If the reports show weaker-than-expected outcomes, these could drag the USD lower and create a tailwind for AUD/USD.
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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