The Australian Dollar is holding onto modest gains as we head into Friday, trading around 0.6215 after dipping to a two-week low. The pressure is still on, largely due to US President Donald Trump’s insistence on imposing tariffs on Chinese imports, which is putting a damper on market optimism.
In the background, talk of a possible rate cut by the Reserve Bank of Australia (RBA) in February and China’s ongoing economic challenges are adding to the Aussie’s hurdles.
Daily Market Insights: Aussie Faces Challenges Amid US Tariff Concerns
Trade tensions are in the spotlight as the US confirms tariffs of 25% on Canada and Mexico, and 10% on China, coming into effect on February 1. In response, the US Dollar has eased off, as weaker US economic data has erased recent gains, pulling the DXY down from its high near 108.00. Meanwhile, China’s manufacturing PMI shows contraction with services barely eking out growth, adding pressure to the Australian Dollar. Despite this, iron ore prices have reached annual highs, providing mild support to the Aussie even with concerns over China’s lackluster demand.
Markets seem convinced of an RBA rate cut in February, which is also weighing on the Australian currency. On the US data front, the Personal Consumption Expenditures (PCE) Price Index—favored by the Federal Reserve for tracking inflation—rose by 0.3% month-over-month in December, following a 0.1% rise in November. Annually, PCE inflation increased to 2.6% from 2.4% the previous month. The core PCE, excluding food and energy, held steady at 2.8% year-over-year for the third month running. Market expectations are currently set on the Fed holding rates steady in March.
Technical Overview: AUD/USD Struggles for Clarity
The AUD/USD pair is stuck in a tight range, trying to break past resistance near 0.6230, while clinging to support at 0.6200. The Relative Strength Index (RSI) is at 42, indicative of a lack of clear direction. Meanwhile, the MACD histogram is showing smaller green bars, signaling waning bullish momentum. Although there have been attempts at recovery, the Australian Dollar’s potential for upward movement seems limited. A fall below 0.6200 could lead to further drops, while a climb above 0.6230 might bring some short-lived relief.
Tariffs FAQs
What are tariffs?
Tariffs are customs duties on certain imports or categories of goods. Their main goal is to give local producers a competitive edge by making imported goods more expensive. Alongside trade barriers and import quotas, tariffs play a vital role in protectionism.
How do tariffs differ from taxes?
Both tariffs and taxes generate government revenue, but tariffs are pre-paid upon entry, while taxes are paid at purchase. Taxes target individual taxpayers and businesses, whereas importers pay tariffs.
What do economists think about tariffs?
Economists are divided on tariffs. Some argue they are necessary to protect domestic industries and correct trade imbalances, while others warn they can escalate costs and spark retaliatory measures.
What are Donald Trump’s plans regarding tariffs?
As the presidential election neared in November 2024, Trump reiterated his focus on tariffs to bolster the US economy and support domestic producers. In 2024, Mexico, China, and Canada accounted for 42% of US imports. Mexico was the top exporter with $466.6 billion, according to the US Census Bureau. Trump intends to target tariffs at these nations, using the proceeds to reduce personal income taxes.
