- The AUD/USD weakens around 0.6550 in the early Asian session on Monday.
- Besent said that tariffs will return to April levels for August 1 for countries without an agreement.
- The RBA is expected to reduce the target of the Central Bank cash in a 3 -point percentage point at 3.6% on Tuesday.
The Aud/USD pair operates in negative territory for the third consecutive day about 0.6550 during the early Asian session on Monday. The renewed concern for a global trade war weighs on the Australian dollar (AUD) against the US dollar. The decision on the interest rate of the Bank of the Reserve of Australia (RBA) will be at the Center for Care later on Tuesday.
The US Treasury Secretary, Scott Besent, said on Sunday that US President Donald Trump will send letters to some commercial partners saying that the tariffs will return to the levels of April 2 on August 1 if there is no progress in the commercial agreement. Besent added that on August 1 it is not another period for new tariffs, but it could still give commercial partners more time to renegotiate tariff rates. The renewed concern about commercial tensions and tariff uncertainty could undermine the most risky assets such as the AUD.
It is anticipated that the RBA will cut its official cash rate (OCR) for the third time this year at its July meeting on Tuesday. Operators in financial markets are now valuing consecutive 25 basic points (PBS) in July and August, followed by a third party in November. The expectations of RBA feature cuts could drag the AUD out against USD in the short term.
Investors will closely monitor developments around tariff policies. Trump said on Saturday that he had signed letters to 12 countries describing the various tariff levels they would face on the goods that export to the US, with the offers of “Take or leave it” that will be sent on Monday, according to Reuters. Any positive progress could help limit the losses of the AU, which acts as Proxy of China, since China is an important commercial partner of Australia.
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.
