AUD/USD holds ground above 0.6500, eyes on US-China trade talks
- AUD/USD faced challenges as the US Dollar appreciates on the US-EU trade deal.
- US-China trade talks are set to resume on Tuesday.
- The RBA is expected to monitor the June labor force data and second-quarter inflation figures closely.
AUD/USD edges higher after registering losses in the previous three sessions, trading around 0.6520 during the Asian hours on Tuesday. The pair faced challenges as the US Dollar (USD) rose on the trade deal between the United States (US) and the European Union (EU).
The US and EU reached a framework trade agreement on Sunday that sets 15% tariffs on most European goods, taking effect on August 1. This deal has ended a months-long stand-off, per Bloomberg.
Traders keep their eyes on further developments in the US-China trade talks. The discussions are set to resume on Tuesday after top economic officials from both nations held over five hours of negotiations in Stockholm on Monday. The purpose of this meeting is to resolve ongoing disputes and extend their trade truce by another three months.
US Treasury Chief Scott Bessent met with China’s Vice Premier He Lifeng at Sweden’s Rosenbad government offices. The meeting comes ahead of an August 12 deadline to finalize a long-term tariff agreement with the Trump administration, building on preliminary deals reached in May and June that had helped ease tensions.
The US Federal Reserve (Fed) is widely expected to keep the benchmark interest rate steady between 4.25% and 4.50% at its July meeting. The FOMC press conference will be observed for any signs that rate cuts may start in September.
The Reserve Bank of Australia (RBA) is expected to closely watch the June labor force data and second-quarter inflation figures before deciding on a potential rate cut. Both the monthly and quarterly CPI reports are scheduled for release later this week.
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.
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