The Australian Dollar (AUD) has experienced a notable decline against the US Dollar (USD) for the second consecutive day, largely driven by recent tariff threats from US President Donald Trump. The currency’s struggle can be attributed to heightened risk aversion as reports emerge regarding Trump’s advisers advocating for significant tariffs on imports, including a potential 25% surcharge on goods from Canada and Mexico set to take effect on February 1.
On Monday, President Trump revealed plans to impose tariffs on various imports such as computer chips, pharmaceuticals, steel, aluminum, and copper with the intent of promoting domestic production within the United States. In addition, he expressed intentions to limit Chinese involvement in the popular social media platform TikTok, underscoring his focus on bolstering US manufacturing capacities.
The US Dollar Index (DXY) rose significantly, nearing 107.80, as traders remain vigilant ahead of forthcoming economic indicators such as US Durable Goods Orders, Consumer Confidence, and the Richmond Fed Manufacturing Index. The Treasury Secretary under Trump has hinted at the introduction of comprehensive tariffs on imports, starting at 2.5% and potentially escalating to 20%, reflecting a continuation of the strong trade policies associated with his administration.
With ongoing uncertainty surrounding Trump’s trade and immigration policies, the USD has gained strength, leading to expectations that the Federal Reserve may adopt a cautious approach regarding interest rate adjustments this year. Recent data indicated a slight decrease in the US Composite PMI and mixed results for the Manufacturing and Services PMIs, which may further complicate monetary policy decisions.
Despite these challenges, the Australian Dollar has been further impacted by disappointing economic metrics from China. The country’s Manufacturing PMI fell below expectations, raising concerns about its economic performance which significantly influences Australia. Additionally, recent stimulus measures announced by China have not provided the anticipated boost to the AUD, as ongoing economic troubles, including weak demand and deflationary pressures, continue to weigh heavily on market sentiment.
Currently, the AUD/USD pair hovers around 0.6260, indicative of neutral market conditions, with immediate support noted at 0.6256. Should resistance be encountered, levels to watch include the nine-day EMA at 0.6266 and the psychological mark of 0.6300, with potential bullish movements targeting 0.6360 if these levels are surpassed.
