AUD/USD declines as Trump escalates trade threats on Russia
- The Australian Dollar weakens against the US Dollar, trading below 0.6550 following Trump’s latest tariff threats to Russia.
- US President Donald Trump threatens “very severe” tariffs on Russia if no Ukraine peace deal is reached within 50 days.
- Russia faces fresh economic pressure as NATO and the US ramp up military and trade actions.
The Australian Dollar (AUD) weakens against the US Dollar (USD) on Monday, pressured by renewed safe-haven flows into the Greenback following US President Donald Trump’s latest tariff threats. At the time of writing, the AUD/USD pair is edging lower trading around 0.6547 during American trading hours.
Risk sentiment was already fragile across global markets after Trump warned over the weekend of sweeping 30% tariffs on imports from Europe and Mexico. On Monday, he made headlines again by announcing that the United States would impose “very severe” tariffs on Russia if a peace deal in Ukraine is not reached within 50 days. Trump added that these would include “secondary tariffs” aimed at countries importing Russian oil, including major buyers in Asia such as China and India.
Market pressure intensified after Trump, speaking alongside NATO Secretary-General Mark Rutte at the White House, revealed that European allies would purchase “billions and billions” of dollars worth of US military equipment to be transferred to Ukraine. Rutte confirmed that advanced US-made Patriot missile systems would be delivered as part of the plan, with NATO members funding the shipments and coordinating delivery.
Rutte named Germany, Finland, Canada, Norway, Sweden, the United Kingdom, and Denmark among the nations taking part in the weapons purchase. He stressed that “speed is of the essence here” and said the move was intended to make Russian President Vladimir Putin “reconsider” peace negotiations.
Trump’s aggressive trade stance has rattled global markets, sparking fresh concerns about a slowdown in international trade and commodity demand. As a China-linked, commodity-sensitive currency, the Australian Dollar remains especially vulnerable to geopolitical shocks and weakening risk sentiment. Fears of disrupted supply chains due to secondary sanctions have further dampened investor appetite for risk assets, keeping the Aussie on the defensive.
Looking ahead, focus shifts to this week’s US inflation data, with the Consumer Price Index (CPI) due on Tuesday and the Producer Price Index (PPI) on Thursday, which could influence the Federal Reserve's (Fed) monetary policy expectations.
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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