AUD/USD climbs toward 0.6600 amid ongoing Trump-Xi meeting
- AUD/USD gains due to optimism over the potential for a US-China trade deal.
- Presidents Trump and Xi are set to discuss tariffs, rare earths, soybean trade, fentanyl, and the TikTok deal.
- Fed Chair Jerome Powell noted that another rate cut in December is uncertain.
AUD/USD gains ground after recovering its recent losses registered in the previous session, trading around 0.6590 during the Asian hours on Thursday. The pair appreciates as the Australian Dollar (AUD) receives support from improved market sentiment, fueled by optimism over the potential for a trade deal between the United States (US) and China. Any shift in China’s economic conditions could also affect the AUD, given the close trade ties between China and Australia.
At the time of writing, the meeting between US President Donald Trump and Chinese President Xi Jinping is going on at a South Korean airbase near Gimhae International Airport in Busan. Both leaders are expected to discuss a wide range of issues, from fentanyl tariffs to rare-earth to soybean trade to the TikTok deal.
The AUD gained support after Australia’s hotter-than-expected Q3 inflation and August CPI data were released on Wednesday. The stronger readings reduced expectations for near-term rate cuts by the Reserve Bank of Australia (RBA). RBA Governor Bullock noted that the labor market remains somewhat tight, despite the unexpected rise in the unemployment rate.
The Federal Reserve (Fed) delivered a widely anticipated 25-basis-point interest rate cut on Wednesday. Policymakers made a mental note of a general increase in some inflationary pressures through the second half of the year, but not enough to deter another leg down in interest rates. However, Fed Chair Jerome Powell stated at the post-meeting press conference that another rate cut in December is far from certain, emphasizing that the path forward remains uncertain.
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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