AUD/USD eased on Monday, with the pair near 0.7051 after briefly moving above 0.7100 earlier in the day. The move came as the Australian Dollar struggled to rise even as the US Dollar weakened.
On Friday, the US Supreme Court ruled that President Donald Trump’s use of the International Emergency Economic Powers Act to impose broad tariffs was unlawful. President Trump then announced a 15% global tariff under Section 122 of the Trade Act of 1974.
Market Reaction And Dollar Dynamics
The US Dollar fell at first, then steadied as markets adjusted to the new tariff framework. The US Dollar Index was around 97.67 after an intraday low near 97.35.
Reduced expectations for a near-term Federal Reserve rate cut gave the US Dollar some support. Markets still price in about 50 basis points of cuts by year-end, with fourth-quarter GDP growth described as sluggish and PCE inflation remaining firm.
In Australia, traders are pricing in the chance of another rate rise in March after firmer data and tighter policy signals. Inflation data due on Tuesday is expected to show headline CPI at 3.7% year-on-year in January versus 3.8% in December, with Trimmed Mean CPI seen steady at 3.3% year-on-year.
We recall how the surprise 15% global tariff imposed in early 2025 created significant global trade friction. This policy was a key driver that weighed on risk-sensitive currencies throughout last year. As a result, we have seen AUD/USD steadily decline from over 0.7000 to its current trading range around 0.6550.
Shifting Policy Outlook And Trading Implications
The US dollar’s trajectory has shifted significantly since the policy debates of 2025. While the Federal Reserve held rates firm for much of last year to combat tariff-related inflation, the economic outlook has since softened. January’s Non-Farm Payrolls data, which showed a disappointing gain of only 85,000 jobs, now has us pricing in potential rate cuts this year.
In Australia, the hawkish sentiment from early 2025, when a rate hike seemed imminent, has completely evaporated. The global trade slowdown has cooled the domestic economy, with the latest data showing Q4 2025 headline CPI falling to 2.9%. This brings the Reserve Bank of Australia’s policy stance much closer to the Federal Reserve’s, with markets now anticipating easing from both.
For derivative traders, the primary theme has shifted from the clear policy divergence we saw in 2025. Now, we are facing synchronized global slowing, with uncertainty centered on which central bank will cut rates first and fastest. This environment suggests buying volatility through straddles or strangles could be a prudent strategy to position for sharp moves in either direction.
