- The Australian dollar strengthened as President Trump’s revised tariffs on China turned out to be much lower than initially expected.
- Trump announced plans to impose 10% tariffs on Chinese imports starting February 1.
- The S&P/ASX 200 index fell, led by a decline in mining stocks as weak commodity prices put pressure on the sector.
The Australian dollar (AUD) remained steady against the US dollar (USD) on Thursday, as market concerns eased following news that China’s tariffs proposed under US President Donald Trump’s revised plan are much lower than initially expected. This development helped calm investors’ nerves, especially in light of the strong trade relations between China and Australia, which make Australian markets sensitive to changes in the economic landscape in China.
President Trump announced plans to implement a 10% tariff on Chinese imports starting February 1, citing concerns about shipments of fentanyl from China to Mexico and Canada, according to Reuters. In response, Chinese Vice Premier Deng Xuexiang on Tuesday warned of the potential repercussions of a trade war, noting that “there are no winners” in such conflicts. His comments come as China prepares for potential tariffs under the Trump administration, as reported by CNBC.
The S&P/ASX 200 fell to nearly 8,400 on Thursday, driven primarily by a decline in mining stocks as lower commodity prices weighed on the sector. This contraction occurred despite strong gains on Wall Street. Investors remain cautious as they evaluate the ramifications of President Trump’s policy changes.
The Australian dollar rises as market concerns about Trump’s tariffs ease
- The US Dollar Index (DXY), which tracks the performance of the US dollar against six major currencies, maintains its position above 108.00 at the time of writing. The dollar received support as President Donald Trump issued a memorandum directing federal agencies to investigate and address the persistent trade deficit.
- Traders are likely to watch the release of the preliminary global Purchasing Managers’ Index (PMI) in the US and the Michigan Consumer Confidence Index for January on Friday. These indicators are likely to provide valuable insights into near-term economic trends.
- The US dollar could rise as traders expect the US Federal Reserve to keep its benchmark overnight interest rate steady in the 4.25%-4.50% range at its January meeting. Moreover, Trump’s policies could lead to inflationary pressures, which could limit the Fed to just one rate cut.
- US retail sales rose 0.4% month over month in December, reaching $729.2 billion. This reading was weaker than market expectations for an increase of 0.6% and lower than the previous reading of 0.8% (revised from 0.7%).
- The US Consumer Price Index rose 2.9% year-on-year in December, up from 2.7% in November, in line with market expectations. On a monthly basis, the CPI rose by 0.4%, after a 0.3% increase in the previous month. The core U.S. CPI, which excludes volatile food and energy prices, rose 3.2% annually in December, just below the November figure and analysts’ expectations of 3.3%.
- Traders are increasingly anticipating the Reserve Bank of Australia (RBA) to start cutting interest rates as soon as next month. These expectations are fueled by weaker core inflation data, which fell to its lowest level since the fourth quarter of 2021, approaching the Reserve Bank of Australia’s target range of 2% to 3%. All eyes are now on Australia’s next quarterly inflation report, due next week, as it could provide additional clues about the future direction of interest rates.
Technical Analysis: The Australian dollar is still below the 0.6300 level, which is the upper border of the ascending channel
The AUD/USD pair is trading near 0.6270 on Thursday, as daily chart analysis indicates movement within an ascending channel pattern, indicating a potential bullish bias. In addition, the 14-day Relative Strength Index (RSI) is just above 50, which reinforces the positive market sentiment.
On the upside, AUD/USD may test the psychological resistance level at 0.6300, with the next target near the upper border of the ascending channel around 0.6320.
Initial support is seen at the nine-day exponential moving average (EMA) at 0.6244, followed by the 14-day EMA at 0.6238. Stronger support is found at the lower border of the ascending channel around 0.6220, with further support at the psychological level of 0.6200.
AUD/USD: daily chart
Australian dollar price today
The table below shows the percentage change in the Australian Dollar (AUD) against the major currencies listed today. The Australian dollar was the strongest against the euro.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | 0.06% | 0.03% | -0.02% | 0.03% | -0.03% | -0.00% | -0.05% | |
| euro | -0.06% | -0.03% | -0.08% | -0.03% | -0.09% | -0.06% | -0.11% | |
| GBP | -0.03% | 0.03% | -0.06% | 0.00% | -0.06% | -0.02% | -0.08% | |
| JPY | 0.02% | 0.08% | 0.06% | 0.06% | 0.01% | -0.01% | -0.02% | |
| Canadian | -0.03% | 0.03% | -0.00% | -0.06% | -0.05% | -0.03% | -0.08% | |
| Australian dollar | 0.03% | 0.09% | 0.06% | -0.01% | 0.05% | 0.04% | -0.01% | |
| New Zealand dollar | 0.00% | 0.06% | 0.02% | 0.00% | 0.03% | -0.04% | -0.05% | |
| Swiss franc | 0.05% | 0.11% | 0.08% | 0.02% | 0.08% | 0.00% | 0.05% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the Australian dollar from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Frequently asked questions about the Australian dollar
One of the most important 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 major driver is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is one factor, as well as Australia’s inflation, growth rate and trade. balance. Market sentiment – whether investors are snapping up riskier assets (risk on) or looking for safe havens (risk off) – is also a factor, with risk appetite positive for the Australian dollar.
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 affects the level of interest rates in the economy as a whole. The RBA’s main objective 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 Australian dollar, and relatively low interest rates. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD negative and the latter AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian Dollar (AUD). When the Chinese economy is performing well, it buys more raw materials, goods and services from Australia, which raises demand for the Australian dollar, raising its value. The opposite is the case when the Chinese economy does not grow as quickly as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian dollar and its crosses.
Iron ore is Australia’s largest export, representing $118 billion annually according to 2021 data, and China is its main destination. Therefore, the price of iron ore could be a driver of the Australian dollar. In general, if the price of iron ore rises, the Australian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of iron ore falls. Higher iron ore prices also tend to increase the likelihood of a positive trade balance for Australia, which is also positive for the Australian dollar.
The balance of trade, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can affect the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value from the excess demand generated by foreign buyers seeking to buy its exports in exchange for what it spends to buy imports. Therefore, a positive net trade balance strengthens the Australian dollar, with the opposite effect if the trade balance is negative.