The Australian Dollar has experienced a decline amid heightened risk aversion linked to discussions surrounding economic policies by the Trump administration, particularly regarding tariffs. This shift comes as the S&P/ASX 200 Index rose to nearly 8,400, marking its highest point in six weeks. President Trump’s plan to review tariff policies and the U.S. trade relationships with Canada, Mexico, and China is contributing to market uncertainty.
Despite recent gains, the Australian Dollar (AUD) retraced on Tuesday, even as the AUD/USD pair saw an uptick due to the weakening of the US Dollar (USD). Market participants are keenly observing developments regarding the Trump administration’s approach to tariffs, as these policies are likely to influence market sentiment.
On the same day, the ASX 200 Index’s rise came in response to Trump’s inauguration, with investors reacting positively to the absence of new tariff announcements. There are growing expectations that the Reserve Bank of Australia (RBA) may consider cutting interest rates soon, particularly in light of core inflation data dropping to levels last seen in late 2021 and nearing the RBA’s target range of 2% to 3%. The upcoming quarterly inflation report is anticipated to offer important insights regarding future interest rate adjustments.
Meanwhile, the People’s Bank of China maintained its Loan Prime Rates (LPRs) at 3.10% for the one-year rate and 3.60% for the five-year rate. Given China’s close trading partnership with Australia, economic fluctuations in China could directly affect Australian financial markets.
The US Dollar Index also experienced movement, hovering around 108.50, but faced challenges following reports that President Trump would not impose immediate new tariffs. This suggests a potential for ongoing volatility in currency markets. The Federal Reserve is expected to maintain its benchmark overnight rate in the current range, though investors are wary of potential inflationary pressures stemming from Trump’s economic strategies.
As the AUD/USD pair trades around 0.6230, it faces challenges returning to a descending channel, with crucial support levels identified near recent lows. A breach below these levels may lead to further declines, while positive movements could push the pair towards the psychological resistance at 0.6300.
