Australian Dollar struggles amid tariff tensions but shows signs of cautious recovery
- AUD/USD fell 0.80% to 0.6245 on Tuesday amid heightened risk-off sentiment.
- The Australian Dollar extended its losing streak for a sixth consecutive session as investors reacted to renewed US tariff measures.
- US President Trump’s decision to impose import duties on China, one of Australia’s key trading partners, intensified trade war fears.
The Australian Dollar (AUD) extends its losing streak against the US Dollar (USD) on Monday as the pair tests critical support near 0.6250. Amid escalating trade war concerns spurred by US President Donald Trump’s latest tariff policy on Chinese imports, the AUD is under pressure despite some recovery attempts.
Daily digest market movers: Markets assess fresh US tariffs
- Investor attention shifted sharply after President Trump announced a 25% tariff on Canadian imports and a 10% duty on Chinese goods, actions that have raised inflation concerns and spurred speculation on the Federal Reserve’s potential response.
- A planned 25% tariff on Mexican imports was temporarily postponed after Mexican authorities agreed to bolster border security by deploying 10,000 troops to the border, a move aimed at reducing drug smuggling.
- Canada signaled it would take swift retaliatory measures, while China vowed to challenge the tariffs through international trade bodies.
- January’s ISM Manufacturing PMI exceeded forecasts, signaling continued strength in the US private sector and bolstering the US Dollar's safe-haven appeal despite earlier weakness.
AUD/USD technical outlook: Sellers push to conquer 0.6200 level
The AUD/USD pair has been trading within a tight range lately. On Friday, it managed a modest recovery, rising to 0.6215. The Relative Strength Index (RSI) currently stands at 47, indicating that while momentum is not fully restored, the market remains in a cautious, negative zone. The Moving Average Convergence Divergence (MACD) histogram is showing rising green bars, suggesting that bullish elements are gradually emerging despite overall indecision.
If buyers can push the price above 0.6300, it may signal a more definitive recovery. However, further weakness would lead to additional downside pressure if the support at 0.6200 fails to hold.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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