AUD/USD gathers strength to above as traders await US-China trade talks
- AUD/USD gains traction to around 0.6570 in Monday’s early Asian session.
- US and China are expected to extend the trade truce by 90 days, said SCMP.
- The Fed is anticipated to leave the interest rate unchanged on Wednesday.
The AUD/USD pair edges higher to near 0.6570 during the early Asian session on Monday. Optimism surrounding the US-China trade deal provides some support to the Australian Dollar (AUD) against the US Dollar (USD). US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are scheduled to meet on Monday in Stockholm.
The South China Morning Post reported, citing unnamed sources, that the world’s two largest economies are expected to extend their tariff truce by another three months. The US and China will not impose additional tariffs on each other during the extension. The current pause was to end Aug. 12. Positive developments surrounding US-China trade talks underpin the China-proxy Aussie, as China is a major trading partner of Australia.
On the USD’s front, the US Federal Reserve (Fed) is expected to hold its benchmark interest rate steady between 4.25% and 4.50% at its July meeting on Wednesday. Traders will closely monitor the FOMC press conference for any signs that rate cuts may start in September.
Markets have priced in nearly a 62% odds of a rate cut on September 1, according to the CME Group's FedWatch tool. Any hawkish remarks from the Fed officials could lift the Greenback and cap the upside for the pair.
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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