Australian Dollar continues soft on US tariff threats
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Patricio Martín
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03 Feb @ 08:35 (GMT+0)

Australian Dollar continues soft on US tariff threats

  • AUD/USD fell 0.80% to 0.6245 on Monday amid heightened risk-off sentiment.
  • The Australian Dollar extended its losing streak for a sixth consecutive session as investors reacted to renewed US tariff measures.
  • US President Trump’s decision to impose import duties on China, one of Australia’s key trading partners, intensified trade war fears.

The Australian Dollar (AUD) extends its losing streak against the US Dollar (USD) on Monday as the pair tests critical support near 0.6250. Amid escalating trade war concerns spurred by US President Donald Trump’s latest tariff policy on Chinese imports, the AUD is under pressure despite some recovery attempts.

Daily digest market movers: Markets assess fresh US tariffs

  • Investor attention shifted sharply after President Trump announced a 25% tariff on Canadian imports and a 10% duty on Chinese goods, actions that have raised inflation concerns and spurred speculation on the Federal Reserve’s potential response.
  • A planned 25% tariff on Mexican imports was temporarily postponed after Mexican authorities agreed to bolster border security by deploying 10,000 troops to the border, a move aimed at reducing drug smuggling.
  • Canada signaled it would take swift retaliatory measures, while China vowed to challenge the tariffs through international trade bodies.
  • January’s ISM Manufacturing PMI exceeded forecasts, signaling continued strength in the US private sector and bolstering the US Dollar's safe-haven appeal despite earlier weakness.

AUD/USD technical outlook: Sellers push to conquer 0.6200 level

The AUD/USD pair has been trading within a tight range lately. On Friday, it managed a modest recovery, rising to 0.6215. The Relative Strength Index (RSI) currently stands at 47, indicating that while momentum is not fully restored, the market remains in a cautious, negative zone. The Moving Average Convergence Divergence (MACD) histogram is showing rising green bars, suggesting that bullish elements are gradually emerging despite overall indecision.

If buyers can push the price above 0.6300, it may signal a more definitive recovery. However, further weakness would lead to additional downside pressure if the support at 0.6200 fails to hold.

US-China Trade War FAQs

Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.

An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.

The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.