Insights 
VT 
The Australian Dollar weakens against the US Dollar as the latter gains strength after a tariff reduction agreement between the US and China. The AUD/USD pair falls to nearly 0.6390 during North American trading as the US Dollar rises, triggered by the rollback of tariffs imposed by both nations.
The US Dollar Index (DXY) shows gains after struggling at 101.95 but remains over 1% higher than its previous close at 101.50. A 90-day tariff pause was announced by the US and China, with both countries reducing tariffs by 115%, although the 20% fentanyl import duty on China remains.
Global Economic Outlook And Market Reactions
The rapprochement is expected to prompt a reassessment of the global economic outlook, causing a rally in global equities, including a 2.6% increase in the S&P 500. The Australian Dollar is supported by this trade agreement, given Australia’s significant export reliance on China.
The Aussie Dollar’s performance will depend on upcoming employment data for April. The unemployment rate is anticipated to be steady at 4.1%, with job additions expected to be 25,000, down from 32,200 in March. Monetary policy, dictated by the Federal Reserve, directly affects the US Dollar, with measures like interest rate changes and quantitative easing impacting its value.
The retreat in the Australian Dollar (AUD) against the US Dollar (USD) can be largely chalked up to the spike in demand for the latter, following a fresh agreement between Washington and Beijing. Specifically, the agreement entails a mutual reduction in tariffs over a 90-day period. That alone gave markets a jolt, and we’ve seen a marked shift in currency pair movements, with AUD/USD pushing down to around the 0.6390 mark.
The US Dollar Index (DXY), a gauge of the greenback’s strength against a group of peers, has clawed back some of its earlier losses. After straining to hold levels near 101.95, it has broken beyond 102, now more than a percent up over its prior anchor at 101.50. This sort of price action points to confidence returning to USD holdings, at least in the short term, and could very well temper appetite for pro-cyclical currencies.
The rollback of around 115% in tariffs — yes, that’s the aggregate figure factoring both sides — might seem like diplomatic progress, but it’s worth noting that some duties, such as those on fentanyl imports from China, are still intact. So while this is broadly bullish for trade-linked risk assets and could imply smoother logistical paths for exporters, the tension has not entirely dissipated.
Impact On Australian Economy And Currency Movements
One cannot ignore the subsequent spike in global equity markets. US stocks rallied markedly, led by a 2.6% gain in the S&P 500. Risk-on sentiment typically draws capital back into equities and out of safe havens, or currencies like the Japanese Yen. However, that hasn’t hurt the US Dollar this time — instead, it’s seen as gaining on the back of improved trade expectations and a more constructive economic environment.
The Australian economy, given its exposure through commodity exports to China, often mirrors the health of Chinese demand. So on paper, this trade détente should lend some support to the AUD. But in real-time trading, things don’t always line up so cleanly. Despite a better environment for Aussie exports, particularly iron ore and coal, we’re seeing the currency suppressed. That implies any tailwind from trade may already be priced in or overshadowed by broader USD strength.
Moving ahead, short-term positioning will be coloured by domestic Australian economic data — particularly labour figures. April’s employment report will offer clues on whether the RBA has any reason to change course. Markets expect a steady jobless rate of 4.1%, but only about 25,000 positions to have been added. That’s down from March’s 32,200. A softer print could narrow the odds of further tightening and reduce rate speculation, which would likely weigh on AUD.
On the other side, there’s the Federal Reserve’s monetary policy stance, which dramatically shapes USD flows. Traders should keep a sharp eye on statements from members of the FOMC. Comments or minutes hinting at further rate holds or even cuts would likely dampen the current rally in the Dollar, but for now, expectations remain in flux. Inflation readings continue to guide US central bankers, and if data continues to show stickiness in core prices, it’s hard to see the Fed letting its foot off the brake any time soon.
What’s key for pricing direction in the next fortnight is the balance between Australian domestic influences and changes in expectations around USD. For now, the latter carries more weight. Until we see compelling local data, any rally in the Aussie is likely to meet resistance, particularly if the USD continues to be propped up by stronger confidence in the US economy and ongoing safe-haven flows.
Volatility will likely persist, and option skew may tilt bearishly against AUD in short tenors. As data feed into expectations about relative monetary policy stances, directional bets should reflect the variance in backward-looking versus forward-looking indicators.
