AUD/USD has risen sharply to nearly 0.6050, despite escalating trade tensions between the US and China. China has imposed a 34% import duty on US goods in response to US tariffs.
During European trading hours, the Australian dollar advanced considerably against major currencies. The AUD was notably strong against the USD, outperforming various currencies including the GBP and JPY.
Implications Of Trump’s Tariffs
China warned the US about the implications of Trump’s tariffs, labelling them as detrimental. The trade conflict poses risks for Australia, which relies heavily on exports to China.
Additionally, expectations around the Reserve Bank of Australia becoming more dovish are concerning. Meanwhile, the US dollar faces pressure from fears regarding inflation and economic growth linked to Trump’s trade agenda.
The Australian dollar’s uptick to nearly 0.6050 has caught many off guard, especially with trade friction between the US and China heating up. While China’s latest retaliatory move—a 34% tariff on American imports—might have initially seemed like it would dampen sentiment around the AUD, short-term participants have instead responded in the opposite manner. During the latest European window, we saw broad-based buying interest in the AUD across the board. Most notably, gains versus the USD suggest this is less about Australian strength and more about dollar softness creeping in.
From our perspective, the story has two layers. On one side, the Australian economy remains tightly linked to Chinese demand, particularly in commodities. That relationship is typically a double-edged sword. When trade flows between China and the US come under threat, it usually weighs on Australia’s outlook. But the market appears to be temporarily turning a blind eye, perhaps due to overextended positions or just repositioning ahead of larger macro events. Still, ignoring risks doesn’t reduce them.
Impact On US Sentiment
We must factor in what’s happening in Washington. The White House’s trade stance, still framed around tariff escalation, is starting to bite sentiment. Investors are treading more carefully with the greenback, not just due to trade dynamics but also because inflation pressures haven’t faded. Loss of momentum in the US economy has started to show up again, especially in forward-looking surveys and consumer indicators. That’s weakening the case for broader dollar strength over the medium term.
At the same time, developments in policy expectations at the Reserve Bank of Australia add another layer to the analysis. Markets have begun to price in a tilt towards easier monetary conditions. There’s a growing sense among us that policymakers in Sydney may have little choice but to shift their tone more openly in that direction if external pressures linger. Labour market softness and subdued wage data already suggest everything isn’t firing evenly across the economy.
So, when we sum it all, the headline rise in AUD/USD likely owes more to position unwinding and a weaker USD than any fresh optimism on Australia’s part. The key for price action in the days ahead lies in how sentiment reacts to China’s next moves and whether the Federal Reserve offers clarity on how willing it remains to hold course.
For position management going forward, shorter-dated volatility appears underpriced given how binary trade updates from Beijing and Washington have become. Watching FX options, we’ve noticed a subtle bid return to front-end AUD risk. That reflects what we’ve seen in spot and reminds us that market pricing doesn’t always reflect fundamentals in the near term. Directional traders should remain aware of this dislocation.
Any move through resistance around 0.6055–0.6070 opens the path towards earlier rejection zones, something we’d need to reassess if compression in rate differentials continues narrowing. But we would caution against reading a durable trend into this rally unless there’s something more constructive from Asia’s growth signals outside of the tariff headlines.
We’re particularly alert to the possibility that retaliation escalates—bringing in sectors not previously targeted, or restrictions beyond traditional goods trade. Those developments would invariably add downside pressure. Until that becomes clear, we continue to treat rallies in the cross as tactical rather than structural.
