AUD/USD is experiencing a recovery, trading around 0.6300 after reaching five-year lows. This movement is attributed to a shift in market sentiment following US President Trump’s announcement regarding reduced tariffs on Chinese imports.
Despite clarifications on tariffs, the positive outlook is supported by rising US equity futures, with the S&P 500 gaining nearly 0.80%. The US Dollar recently hit a three-year low due to heightened tensions in the US-China trade war, while China responded with additional tariffs on US goods.
Chinese Trade Data Focus
The pair is awaiting the Chinese trade data, particularly focussing on export figures. The Australian Dollar’s performance is influenced by the Reserve Bank of Australia’s interest rate policies, global iron ore prices, and the health of the Chinese economy.
China accounts for a large portion of Australia’s exports, especially iron ore, which is valued at $118 billion annually. Fluctuations in iron ore prices can directly affect the AUD’s value, as increased demand typically leads to currency appreciation.
Moreover, Australia’s Trade Balance plays a vital role in determining currency strength. A positive Trade Balance, where exports exceed imports, usually benefits the AUD, whereas a negative balance can have the opposite effect.
What’s been happening in recent sessions is best viewed through the lens of broader risk sentiment, especially as the Australian Dollar attempts to pull itself off the floor. Trading near the 0.6300 mark, the AUD/USD pair has managed a modest recovery, which came shortly after a period of heavier selling that pushed it to levels not seen in five years. It’s rare to see the Aussie this weak without broader macro factors at play, and in this case, we’ve got a clear catalyst—the White House’s decision to ease back slightly on trade hostilities.
Market participants responded quickly once President Trump’s comments on lowering tariffs came out. The resulting lift in equity futures, particularly with the S&P 500 up by around 0.80%, tells a story of risk appetite returning, at least temporarily. However, this isn’t just about equities rising; we believe the underlying change in confidence, even if shallow, is what helped lift AUD/USD off the lows.
US Dollar Weakness
Meanwhile, the US Dollar has been under pressure. Recent weakness, reaching levels not seen since early 2021, reflects investor discomfort with how fraught the economic ties between the US and China have become. This retreat in the Dollar makes it easier for other currencies—especially those with strong ties to China—to stage rebounds, at least in the short term.
Now, the next test for this pair is just around the corner. The upcoming release of Chinese trade figures, particularly export data, could heavily shift sentiment. Traders are already positioning for surprises, given the current state of global demand and the external pressures on Chinese manufacturing. It wouldn’t take much—as we’ve seen before—for a notable deviation in those numbers to swing things sharply in either direction.
We shouldn’t ignore the Reserve Bank of Australia’s current stance either. Though no fresh decision is imminent, rate policy continues to influence positioning in forward markets. Swaps are still pricing in low probability of near-term changes, but expectations are sticky and not immune to re-evaluation if data from China or domestic inflation figures push back against the Bank’s tone.
Commodity prices, particularly iron ore, remain the largest single external pricing driver for the Aussie. Valued at over USD 100 billion per year in exports, iron ore not only represents a core revenue source for the country but also serves as a cross-asset bellwether. Price action here matters—every rally tends to give the Australian Dollar a nudge higher, and vice versa during declines. Keep in mind, China remains the biggest buyer by a wide margin, so anything affecting their industrial output feeds back into Australian terms of trade.
Trade balance data should also be watched closely. When exports outpace imports, the resulting surplus tends to support the currency, reflecting more demand for AUD to purchase those goods. In contrast, a narrowing or negative trade balance often drags on the currency, which markets interpret as a weakening buffer against global volatility. Recent figures have been steady, but some softening in Asian demand could make these numbers more volatile.
For those analysing options and futures pricing, volatility remains relatively contained for now. Implied vols are low considering the event risk on the calendar, but that could change quickly. We’ve seen before how lagging expectations turn into sharp reactions once data hits the tape. Keep delta exposure tight, especially if positioning ahead of Chinese data or iron ore inventory releases later in the week.
The broader context remains that the AUD’s value is highly sensitive to both internal monetary settings and external trade dynamics. Much of what happens next hinges not just on central bank policy but on how the flow of goods and capital plays out between China, the US, and Australia. It’s precisely those intersections that will test how sustainable this bounce really is.
