AUD/USD holds below 0.6400 amid signs of easing US-China tensions
- AUD/USD softens to around 0.6390 in Monday’s early Asian session.
- De-escalation in the US-China tariff war provides some support to the US Dollar.
- China vowed to support firms and workers affected by tariffs.
The AUD/USD pair trades in negative territory near 0.6390 during the early Asian session on Monday. The US Dollar (USD) edges higher against the Aussie amid signs of easing US-China tensions. China will hold a press conference about policies and measures on stabilizing employment and ensuring stable growth on Monday, which will be closely watched by traders.
The Greenback posted its first weekly gain since mid-March on Friday after China granted some tariff exemptions for US imports. This raises hopes that the trade war between the world's two largest economies is nearing an end. China exempted some US imports from its 125% tariffs on Friday, according to businesses, although China quickly knocked down US President Donald Trump's assertion that negotiations between the two countries were underway.
Friday's statement by the Politburo focused on efforts to maintain stability at home by supporting firms and workers most affected by US tariffs. The National Development and Reform Commission, Ministry of Human Resources and Social Security, Ministry of Commerce and People’s Bank of China (PBOC) will jointly hold the conference on Monday.
The Chinese authorities reiterated plans to accelerate debt issuance, ease monetary policy and vowed to support employers to safeguard jobs. Any signs of large stimulus plans could boost the China-proxy Australian Dollar (AUD), as China is a major trading partner of Australia.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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