Australian Dollar Strengthens Despite Rising Risk Aversion, Fed Hawkish Signals
The Australian dollar (AUD) held its ground against the US dollar (USD) on Wednesday (2/12). However, the AUD/USD pair faces challenges due to US President Donald Trump’s 25% tariff hike and Fed Chair Jerome Powell’s indication that the central bank is in no rush to cut interest rates further.
President Trump’s trade adviser Peter Navarro criticized Australia late Tuesday, accusing the country of “killing the aluminum market” just a day after Trump signed an executive order imposing import tariffs on certain metals. Australia is seeking exemptions from the new steel and aluminum tariffs, with Trump previously stating that he would give “very great consideration” to Australia’s request due to the trade imbalance between the two countries.
Australian Trade Minister Don Farrell reiterated on Monday that Australia has been pushing for a similar tariff exemption to the one it obtained under the Trump administration in 2018.
Meanwhile, geopolitical risks remain high. Israeli Prime Minister Benjamin Netanyahu warned Tuesday night that the ceasefire would end, and Israel would resume “fierce fighting” in Gaza if Hamas did not release the hostages by Saturday afternoon, according to the BBC.
Domestically, expectations are growing for a Reserve Bank of Australia (RBA) interest rate cut. The central bank, which currently holds its cash rate at 4.35%, is widely expected to cut it at its February meeting. Traders now see a 95% chance of a cut to 4.10%, recent data shows.
Source: FXXStreet
