Australian Dollar gains traction after US data, tariff signals
- Aussie nears 0.6300 amid softer US Dollar.
- Risk sentiment fluctuates as potential reciprocal tariffs loom between China and the US.
- The USD failed to capitalize on strong PPI data.
The Australian Dollar (AUD) gains ground against the US Dollar (USD) on Thursday. Despite these gains, the risk-sensitive AUD faces headwinds from fears of a potential global trade war, as United States (US) President Donald Trump announced he will impose reciprocal tariffs on every country that charges duties on US imports.
Daily digest market movers: Aussie holds firm after upbeat US PPI and tempered tariff concerns
- The tariffs may begin to be imposed within weeks as Trump’s trade and economic team study bilateral tariff and trade relationships.
- The US Dollar Index (DXY) remains under pressure as traders balance headwinds and tailwinds, including a prospective Ukraine-Russia peace deal, the United States Producer Price Index (PPI) data, and reciprocal tariffs to be imposed.
- A knee-jerk US Dollar rally ensued after stronger-than-expected PPI figures, but the currency reversed course once President Trump and President Vladimir Putin agreed to start peace talks with Ukraine.
- Recent labor figures support moderate optimism: United States Jobless Claims for the week ending February 7 came in at 213,000, below consensus, and Continuing Claims fell to 1.850 million from 1.886 million.
- The monthly headline PPI for January ticked up to 0.4%, surpassing the 0.3% estimate but lower than December’s revised 0.5%. Core PPI came in at 0.3% as expected.
- On the trade front, Trump reiterated his threat of a 100% tariff on BRICS countries and raised issues about unchanged tariffs for many nations. He also criticized the European Union’s trade relationship with the United States, fueling geopolitical uncertainties.
AUD/USD technical outlook: Momentum builds as pair stays above 20-day Simple Moving Average
The Relative Strength Index (RSI) stands at 57, in positive territory and rising sharply, indicating growing buyer conviction. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator prints flat green bars, reflecting a modest but stable uptrend.
By holding firmly above its 20-day Simple Moving Average, the Aussie displays potential for further gains, though lingering tariff threats and shifting risk sentiment could quickly alter the current outlook.
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.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
