In the early Asian trading session on Wednesday, the AUD/USD currency pair maintained a stable position just below the 0.6300 mark, hovering around 0.6275. This came as market participants adopted a cautious stance ahead of a significant event: US President Donald Trump’s planned announcement of reciprocal tariffs. Additionally, traders were also awaiting the release of the US March ADP Employment Change data, which added to the overall sense of anticipation in the market.
Trump is set to implement tariffs on US trading partners on Wednesday. There are speculations that this could potentially lead to additional tariffs on Chinese goods. Since taking office in January, Trump has already imposed a cumulative 20% tariff on all Chinese imports. He has cited Beijing’s insufficient efforts to control the flow of chemicals used in the production of the deadly drug fentanyl into the US as the reason behind these measures. The prospect of an intensifying trade war between the US and China looms large. Given that China is Australia’s major trading partner, any developments in this trade conflict could exert selling pressure on the Australian dollar.
On Tuesday, the Reserve Bank of Australia (RBA) concluded its April policy meeting and decided to keep the Official Cash Rate (OCR) unchanged at 4.10%. The RBA’s monetary policy statement indicated that the board is concerned and vigilant about the future trajectory of inflation. There are uncertainties regarding whether inflation will continue to moderate, and this has influenced the RBA’s decision – making process.
During the press conference, RBA Governor Michele Bullock emphasized the need for policymakers to exercise caution. She stated that they must avoid making hasty decisions regarding policy changes. Bullock also revealed that the board did not discuss a rate cut during the meeting and has not made a decision regarding a potential move in May.
Amidst these developments, there was some positive news for the Australian dollar. Encouraging economic data from China provided a glimmer of support. China’s Caixin Manufacturing PMI improved from 50.8 in February to 51.2 in March, surpassing market expectations of 51.1. As the Australian dollar is often seen as a proxy for the Chinese economy due to their strong trade ties, this positive data offered some respite to the currency.
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