Australian Dollar Strengthens Amid Trade War
The Australian dollar (AUD) experienced a technical correction against the US dollar (USD) for the third straight day on Monday (10/2). However, the AUD/USD pair faced downside momentum after US President Donald Trump, speaking aboard Air Force One, announced plans to impose a 25% tariff on all steel and aluminium imports without specifying the affected countries.
President Trump also stated that additional reciprocal tariffs would be announced midweek, which would take effect immediately, in line with the tariffs imposed by each country, according to Reuters.
Responding to Trump's announcement of the new tariff plans, Australian Trade Minister Don Farrell stressed on Monday that "Australian steel and aluminium support thousands of high-paying American jobs and are critical to our shared defense interests." Farrell is seeking a tariff exemption similar to the one Australia obtained during Trump's presidency in 2018.
The Australian dollar also weakened amid growing concerns over the US-China trade war, given Australia's close economic ties with China. New US tariffs on Chinese imports came into effect last week, while China’s retaliatory tariffs on certain US exports come into effect this Monday.
Last week, Trump and Chinese President Xi Jinping were expected to negotiate a resolution after reports emerged of a possible phone call between the two leaders. However, the call was reportedly canceled, although there are still hopes that it may still happen.
Traders are increasingly confident that the Reserve Bank of Australia (RBA) will cut its cash rate from 4.35% at its next meeting in late February, with market expectations pointing to a 95% chance of a cut to 4.10%. This follows data showing that underlying inflation has eased faster than the RBA had anticipated, prompting several major Australian banks to shift their forecasts for the first rate cut from May to February.
Source: FXStreet
