AUD/USD has recovered to approximately 0.6040 following discussions in Beijing regarding new monetary stimulus aimed at stabilising their economy. However, the ongoing trade tensions between the US and China may hinder the Australian Dollar’s recovery.
The pair rose from a five-year low of 0.5930 earlier in the day, supported by China’s potential economic support, crucial for Australia’s export reliance. Despite this, Australian Treasurer Jim Chalmers warned of expected negative impacts on growth in both Australia and China.
Intensifying Trade Conflict
Recently announced tariffs by US President Trump, including a 54% reciprocal tariff on China, have intensified the trade conflict. China retaliated with a proposed 34% import duty on US goods.
President Trump remains firm on not negotiating tariff reductions, stating conditions would require substantial payments from China. Amid these developments, the US Dollar is experiencing volatility as concerns over a US recession grow, with JP Morgan forecasting a 0.3% decline in GDP by year-end.
We’ve seen AUD/USD claw back to around 0.6040, bouncing off a five-year low of 0.5930. That low came early in the day, but the pair showed some resilience after speculation swirled around potential economic stimulus from China. Markets are hinging on whether Beijing follows through on those hints—Australia, as we know, depends heavily on Chinese demand, particularly for commodities. Developments there ripple sharply across to the Australian Dollar with minimal delay.
However, those hopes are muddied by a deepening rift between Washington and Beijing. The latest move from Trump, who announced a steep 54% tariff on Chinese imports, only fuels the fire. It didn’t take long for China to counter with its own 34% import duties. No one’s stepping back yet—and if anything, the tone is getting louder. Trump has been adamant: there won’t be talks unless China makes what he called “meaningful payments”. That doesn’t suggest we’re heading toward de-escalation anytime soon.
Uncertain Market Outlook
From our perspective, that’s a destabilising force—not just for currency pairs tied to global demand like AUD/USD, but across broader risk sentiment as well. The United States Dollar has become erratic in recent sessions, its fluctuations tracking nervously with shifting estimates on domestic growth. JP Morgan, for instance, has cut their projection for U.S. GDP, now anticipating a -0.3% print before year-end. For short-term strategies, this introduces some noise and makes pricing less straightforward.
Back in Australia, Treasurer Chalmers hasn’t downplayed the pressure. He issued a blunt assessment, reaffirming expectations that both the domestic and Chinese economies would continue to feel the weight of global disruption. If new stimulus from Beijing does materialise, it could support some recovery in Australian exports, but enthusiasm should be tempered. Chinese stimulus measures tend to take time to feed through trade channels, and even then, their impact is often uneven.
For those dealing in derivatives, the set-up over the next few weeks becomes one of timing and positioning, especially around data flow. Weakness in Chinese manufacturing prints or further hawkish rhetoric from U.S. policymakers could reverse AUD/USD gains. Layers of geopolitical risk and modest market expectations suggest any upward corrections in the pair may lack staying power. It’s less about directional conviction now, more about bracing for intraday reversals.
We’re already seeing how twitchy markets have grown—following headlines rather than fundamentals. A thin catalyst, such as leaked tax policy or market intervention chatter, has been enough to jolt the Aussie. Volatility on both sides of the pair appears poised to remain elevated, and opportunities likely rest in ranges rather than breakouts.
Watching commodity prices also becomes more vital. Iron ore, coal, and LNG shipments are key exports. If Chinese demand holds up—perhaps supported by internal policy shifts—we could witness yield-chasing flows return, albeit temporarily. Still, that presumes some easing in other parts of the macro picture, which hasn’t occurred yet.
As each data point lands, particularly U.S. inflation and job figures, we’ll need to re-evaluate directional biases. Until either side bends in this trade standoff, we should expect AUD/USD to trade reactively, influenced far more by sentiment snapshots than structural shifts.
