AUD/USD climbs to fresh weekly top, retakes 0.6300 ahead of Trump’s reciprocal tariffs
- AUD/USD gains positive traction for the second straight day amid subdued USD demand.
- The RBA’s less dovish outlook and China optimism further seem to underpin the Aussie.
- Trade-related uncertainties warrant caution for bulls ahead of US tariff announcements.
The AUD/USD pair attracts some follow-through buyers for the second consecutive day and recovers further from a nearly four-week low, around the 0.6220-0.6215 area touched on Monday. The momentum lifts spot prices to a fresh weekly top during the first half of the European session, with bulls now looking to build on the momentum beyond the 0.6300 round-figure mark.
The Australian Dollar (AUD) continues to draw support from the Reserve Bank of Australia's (RBA) less dovish stance, saying that returning inflation sustainably to target remains the highest priority. Adding to this, RBA Governor Michele Bullock said that the board did not discuss a rate cut and has not made up its mind on a May move. Moreover, the optimism over China's economy benefits antipodean currencies, including the Aussie, which, along with subdued US Dollar (USD) price action, acts as a tailwind for the AUD/USD pair.
Data released on Tuesday showed that China’s manufacturing activity expanded at its fastest pace in a year during March. This comes on top of China's better-than-expected official PMIs on Monday and the recent stimulus measures to prop up an economic recovery underpin the China-proxy Aussie. The USD, on the other hand, continues with its struggle to attract any meaningful buyers amid the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle soon and further lends support to the AUD/USD pair.
That said, persistent worries about the potential economic fallout from US President Donald Trump's tariffs and the risk of a further escalation of the US-China trade war. Moreover, the markets are currently pricing in around a 70% chance that the RBA will cut interest rates at its next policy meeting in May, which might contribute to capping the AUD/USD pair. Traders might also opt to wait on the sidelines ahead of the Trump administration's reciprocal tariffs announcement, which will drive sentiment around the export-reliant AUD.
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.
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