AUD/USD gives back early gains and drops to near 0.6560 amid sour market mood

• AUD/USD surrenders its early gains as global trade tensions weigh on investors’ risk appetite.
• US President Trump announces 30% tariffs on the EU and Mexico, which will become effective from August 1.
• The RBA held interest rates steady at 3.85% last week unexpectedly.

The AUD/USD pair gives up its initial gains and falls to near 0.6560 during the European trading session on Monday. The Aussie pair falls back as the market sentiment remains risk-off amid escalating global trade tensions.

Uncertainty surrounding the global trade has increased as United States (US) President Donald Trump has imposed 30% tariffs on imports from the European Union (EU) and Mexico over the weekend. The event led to an increase in demand for safe-haven assets.

Last week, US President Trump also imposed tariffs on key trading partners, such as Japan, South Korea, and Canada, along with 50% tariffs on copper imports.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near 98.00.

Meanwhile, investors await the US Consumer Price Index (CPI) data for June, which will be released on Tuesday. The inflation report is expected to show that price pressures grew at a faster pace, a scenario that will force traders to pare bets supporting interest rate cuts by the Federal Reserve (Fed) in the September policy meeting.

In the Asia-Pacific region, investors await Australian labor market data for June, which will be released on Thursday. Investors will pay close attention to the employment data as it will influence market expectations for the Reserve Bank of Australia’s (RBA) monetary policy outlook.

In the monetary policy announcement last week, the RBA surprisingly kept its Official Cash Rate (OCR) steady at 3.85%, while traders had priced in a 25 basis points (bps) interest rate reduction.