How AUD/USD holds firm despite tariff turbulence

AUD/USD gains on China’s measured response

The AUD/USD finished higher last week at 0.6272 (1%), buoyed by China’s measured response to new US tariffs, which eased trade war concerns.

However, it surrendered some gains on Friday night following a solid US jobs report, which saw a surprise fall in the unemployment rate to 4.0% from 4.1%, and after President Trump stated he plans to announce reciprocal tariffs this week.

Tariff concerns trigger volatility, but AUD/USD rebounds

The AUD/USD’s retreat extended early today, hitting an intraday low of 0.6229 following reports of a planned 25% tariff on steel and aluminium by President Trump. Nevertheless, the AUD/USD has rebounded and is trading largely unchanged at the time of writing at 0.6270.

The rebound is attributed to Australia’s modest steel and aluminium exports to the US and the fact that China, Australia's main trading partner, is not among the US’s top steel suppliers, which include Canada, Brazil, Mexico, South Korea, and Germany. Furthermore, in 2018, countries like Canada, Mexico, the EU, Australia, and Japan were able to negotiate exemptions, leading to delayed and reduced impacts.

While significant, today’s announcement serves as a reminder that some tariff announcements carry more weight than others and that tariff headlines are part of the ‘new normal’ under President Trump.

AU consumer sentiment index chart

Westpac consumer confidence index

(Tuesday, 11 February at 10:30am AEDT)

In January, consumer confidence fell by 0.7% to 92.1, marking its second consecutive monthly decrease. In addition to the ongoing unsettled global environment, consumers might have been influenced by reports of the Australian dollar's sharp drop against the US dollar, leading to negative headlines about interest rate prospects and the broader economy.

Last week’s headlines about tariffs and trade wars will likely counteract some of the positive news following the recently released Q4 inflation numbers, which have opened the way for the Reserve Bank of Australia (RBA) to cut rates next week. As such, a modest rise of 0.4% is expected for February, which would see the index increase to 92.6.

The Australian interest rate market starts the week pricing in a 22-basis-point (bp) rate cut for February. A total of 85 bp of RBA rate cuts are anticipated for the year, bringing the cash rate to 3.50% by year-end.

AUD/USD technical analysis

From its late September 2024 high of 0.6942 to last week’s low of 0.6087, the AUD/USD fell by a staggering 12.2% in just four months. The AUD/USD has since commenced a counter-trend rally, breaking above downtrend resistance from the 0.6942 high and is now eyeing a solid band of resistance in the 0.6370 area.

If the AUD/USD tests and breaks above 0.6370, it would be an initial indication that a medium-term low at 0.6087 is in place and that a rebound towards the 200-day moving average (MA) at 0.6565 is underway. However, while the AUD/USD remains below resistance at 0.6370, a retest and potential break of last week’s low at 0.6087 remains possible.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 10 February 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}