AUD/USD slumps to near 0.6380 as US Dollar bounces back
- AUD/USD falls to near 0.6380 due to a recovery move in the US Dollar.
- Investors have taken China’s consideration for suspending tariffs on some imports from the US as positive for de-escalation in Sin-US trade war.
- US Durable Goods Orders rose at a robust pace of 9.2% in March.
The AUD/USD pair falls sharply to near 0.6380 in Friday’s North American session. The Aussie pair weakens as the US Dollar (USD) resumes its upside recovery after a corrective move on Thursday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, bounces back to near 99.70 and sees more upside above the immediate high of 100.00.
The Greenback has attracted bids this week on signs that the trade war between the United States (US) and China has started de-escalating. On Thursday, Beijing stated that it is considering suspending additional tariffs on some imports from the US such as medical equipment and some industrial chemicals, according to Bloomberg.
This week, US President Donald Trump also expressed confidence that the White House will make deal with China. “Discussions with Beijing are going well”, Trump said and added that he thinks “they will reach a deal”.
Financial market participants expect that an improvement in trade relations will be favorable for the US, given its strong dependency on imports from China. On Thursday, strong US Durable Goods Orders showed that the impact of tariffs announced by Washington has started feeding into the economy.
The cost of orders for durable goods received by factory owners rose at a robust pace of 9.2% in March, compared to estimates of 2% and the prior release of 0.9%. Business owners would look to pass on the impact of higher cost to consumers. Such a scenario will boost inflation and limit the Federal Reserve (Fed) to support monetary policy expansion.
Meanwhile, the Australian Dollar (AUD) is underperforming on Friday against its peers after a strong run-up in the last two week. The outlook of the AUD still remains uncertain until both China and the US reduces additional tariffs imposed recently. The impact of a slowdown in the Chinese economy will also be visible on Australian exports, given it is the largest trading partner of Beijing.
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.