The Australian Dollar (AUD) is climbing against the US Dollar (USD) amid growing tensions between the US and the European Union (EU). Currently, AUD\/USD is trading around 0.6744, marking its second consecutive day of gains.<\/p>\n
The pressure on the US Dollar comes after President Trump threatened tariffs on eight European countries related to Greenland. The potential for retaliatory measures from the EU heightens concerns over a broader trade conflict, possibly affecting the EU-US trade agreement established last year.<\/p>\n
US officials, including Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick, have reinforced the administration’s trade stance. However, the US Supreme Court has not yet made a judgement on the legality of these tariffs, leaving uncertainty in the legal landscape.<\/p>\n
China’s economic data offers additional support for the Australian Dollar, with the country’s GDP growing 1.2% QoQ, surpassing expectations. The Reserve Bank of Australia (RBA) may consider a rate hike in February, with upcoming employment data in Australia being closely watched.<\/p>\n
In the US, the Federal Reserve is likely to maintain current interest rates during its January meeting, though markets anticipate further rate cuts later in the year. Traders are looking forward to US data releases, such as the PCE inflation report and third-quarter GDP estimates.<\/p>\n
We saw a similar setup around this time in 2025, with tensions between the US and EU boosting the Australian dollar. Today, on January 20, 2026, those trade frictions have evolved from specific tariffs to broader regulatory disputes, particularly concerning the EU’s Carbon Border Adjustment Mechanism. This ongoing disagreement continues to create underlying weakness for the US dollar against select currencies.<\/p>\n
The “Sell America” sentiment from last year has softened, but concerns remain. While the specific Greenland tariff threats of 2025 are a distant memory, the US trade deficit with the EU widened to over $210 billion for the full year 2025, ensuring that trade policy remains a source of market anxiety. Traders should therefore watch for any renewed tariff rhetoric, which could cause sudden USD weakness.<\/p>\n
Unlike early 2025 when strong Chinese data provided a tailwind for the Aussie, the picture is now more mixed. China\u2019s recently reported Q4 2025 GDP growth of 4.7% slightly missed expectations, and industrial production figures for December 2025 showed a concerning dip. This contrasts with the economic strength we saw a year ago and puts a cap on Aussie dollar enthusiasm.<\/p>\n
The divergence in central bank policy we anticipated in 2025 has also shifted significantly. Back then, we were looking at a potential RBA hike against future Fed cuts, but now the Reserve Bank of Australia is firmly on hold at 4.10% amid slowing domestic inflation. The Federal Reserve, after cutting rates through 2025, is now signaling a prolonged pause, creating less of a clear policy advantage for AUD.<\/p>\n
Given these conflicting drivers, traders should consider buying volatility rather than taking a simple directional view. One-month implied volatility in AUD\/USD options is currently around 11%, which is elevated and suggests the market is pricing in a significant move. Strategies like buying straddles or strangles could be effective to capitalize on a breakout in the coming weeks, regardless of the direction.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" AUD strengthens as US-EU trade tensions rise; strong China data and RBA rate hike prospects boost sentiment.<\/p>\n","protected":false},"author":62,"featured_media":16965,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-39670","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/39670","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=39670"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/39670\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16965"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=39670"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=39670"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=39670"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}