- The Australian dollar weakens against the US dollar, quoting below 0.6550 after the latest tariff threats from Trump to Russia.
- The president of the USA, Donald Trump, threatens “very severe” tariffs to Russia if a peace agreement in Ukraine is not reached within 50 days.
- Russia faces a new economic pressure while NATO and the US intensify military and commercial actions.
The Australian dollar (Aud) weakens against the US dollar (USD) on Monday, pressured by renewed flows to the refuge in the dollar after the last tariff threats of the president of the USA, Donald Trump. At the time of writing, the Aud/USD is going down, quoting around 0.6547 during negotiation hours in the USA.
The feeling of risk was already fragile in global markets after Trump warned during the weekend about 30% tariffs on imports from Europe and Mexico. On Monday, it was news again when announcing that the United States would impose “very severe” tariffs to Russia if a peace agreement in Ukraine is not reached within 50 days. Trump added that these would include “secondary tariffs” aimed at countries that import Russian oil, including the main buyers in Asia such as China and India.
Market pressure intensified after Trump, speaking with NATO general, Mark Rutte, in the White House, revealed that European allies would buy “billions” of dollars in American military team to be transferred to Ukraine. Rutte confirmed that advanced patriot missile systems would be delivered manufactured in the US as part of the Plan, with NATO members financeing shipments and coordinating delivery.
Mark Rutte appointed Germany, Finland, Canada, Norway, Sweden, the United Kingdom and Denmark among the nations that participate in the purchase of weapons. He emphasized that “the speed is essential here” and said that the movement was intended to make the Russian president Vladimir Putin, “reconsider” the peace negotiations.
Trump’s aggressive commercial position has shaken global markets, generating new concerns about a slowdown in international trade and commodities demand. As a currency sensitive to commodities linked to China, the Australian dollar remains especially vulnerable to geopolitical clashes and the weakening of the feeling of risk. The fears of interruptions in supply chains due to secondary sanctions have further decreased the appetite of investors by risk assets, keeping Aussie defensive.
Looking ahead, attention focuses on the US inflation data this week, with the Consumer Price Index (CPI) scheduled for Tuesday and the Production Price Index (IPP) for Thursday, which could influence the monetary policy expectations of the Federal Reserve (FED).
Australian dollar – frequent questions
One of the most important factors for the Australian dollar (Aud) is the level of interest rates set by the Australian Reserve Bank (RBA). Since Australia is a country rich in resources, another key factor is the price of its greatest export, iron mineral. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and commercial balance. The feeling of the market, that is, if investors are committed to more risky assets (Risk-on) or seek safe shelters (Risk-Off), it is also a factor, being the positive risk-on for the AUD.
The Australian Reserve Bank (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 the interest rates of the economy as a whole. The main objective of the RBA is to maintain a stable inflation rate of 2% -3% by adjusting the interest rates or the low. Relatively high interest rates compared to other large central banks support the AU, and the opposite for the relatively low. The RBA can also use relaxation and quantitative hardening to influence credit conditions, being the first refusal for the AU and the second positive for the AUD.
China is Australia’s largest commercial partner, so the health of the Chinese economy greatly influences the value of the Australian dollar (Aud). When the Chinese economy goes well, it buys more raw materials, goods and services in Australia, which increases the demand of the AU and makes its value upload. The opposite occurs when the Chinese economy does not grow as fast as expected. Therefore, positive or negative surprises in Chinese growth data usually have a direct impact on the Australian dollar.
Iron mineral is the largest export in Australia, with 118,000 million dollars a year according to data from 2021, China being its main destination. The price of iron ore, therefore, can be a driver of the Australian dollar. Usually, if the price of iron ore rises, the Aud also does, since the aggregate demand of the currency increases. The opposite occurs when the price of low iron ore. The highest prices of the iron mineral also tend to lead to a greater probability of a positive commercial balance for Australia, which is also positive for the AUD.
The commercial balance, which is the difference between what a country earns with its exports and what it pays for its imports, is another factor that can influence the value of the Australian dollar. If Australia produces highly requested exports, its currency will gain value exclusively for the excess demand created by foreign buyers who wish to acquire their exports to what you spend on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the commercial balance is negative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
