- The Aussie is practically flat above 0.6500 after a three-day sell-off.
- The US Dollar has been boosted by strong US data and favourable trade deals.
- On Wednesday, the Australian CPI might help the RBA to ease monetary policy further at next month’s meeting.
The AUD/USD has found some support at the 0.6500 area, but it remains limited below 0.6530, practically flat on the day. The pair is consolidating losses with the immediate bias still bearish, following a nearly1.6% sell-off from last week’s highs.
A batch of upbeat US macroeconomic figures, namely the strong weekly Jobless Claims and the growing business activity figures released last week, cast further doubts about the chances of a Fed rate cut in the coming months, and provided additional support to the US Dollar.
US Dollar rallies on trade deals with the Fed on focus
Meanwhile, the US keeps cutting deals with some of its major trade partners, which is giving additional support to the Dollar. The trade pact with the EU has proved far more beneficial for the US than for the Eurozone’s economy, and US representatives are in talks with China in Stockholm, aiming to smooth their commercial relations further.
All in all, trade uncertainty is vanishing gradually, and with investors focusing on a slew of key US macroeconomic indicators, including the Fed’s monetary policy decision due on Wednesday, the US Dollar’s downside attempts are likely to remain limited.
Also on Wednesday, Australian Consumer Prices Index data are expected to show that inflationary pressures eased further in June, which might boost the RBA’s confidence to ease monetary policy further in the near term. If these figures are confirmed, the risk for the AUD is skewed to the downside.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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