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The commentary cited US delay tactics and the risk of renewed escalation if US political and economic pressures ease. The report concluded that China must prepare for prolonged negotiations and a sustained confrontation.
A prolonged trade war may impact Aussie trade terms, given China accounts for one-third of Australian exports. With a trade-to-GDP ratio above 50%, weaker demand from China could pressure the RBA into adopting a more dovish stance.
RBA Governor Michele Bullock recently warned that a worsening trade war could push Australia into recession. She noted:
“Australia’s economy could easily be compromised if a trade war between the US and China escalates… The market path is reflecting a possibility of a really bad outcome, pointing to a lower RBA cash rate.”
Rising recession fears and a more dovish RBA rate path may weigh on AUD/USD. However, any stimulus out of Beijing could cushion the blow.
AUD/USD: Key Scenarios to Watch
- Bearish Aussie dollar Scenario: Renewed US-China tensions, Beijing withholds fresh stimulus, or dovish RBA cues may send AUD/USD toward the 200-day EMA.
- Bullish Aussie dollar Scenario: Easing US-China trade tensions, Beijing stimulus, or hawkish RBA signals could send the pair toward the May 14 high of $0.65008.
Click here for a more comprehensive analysis of AUD/USD trends and trade data insights.
Aussie Dollar Daily Outlook: Fed Impact
Later today, US monetary policy will also affect AUD/USD. Hawkish Fed rhetoric may widen the US-Aussie interest rate differential, potentially pulling AUD/USD toward the 200-day EMA. Meanwhile, dovish cues favoring a Q3 Fed rate cut would narrow the rate differential, sending the pair toward $0.65008.
Traders should also monitor US fiscal risks and global trade rhetoric. On May 23, AUD/USD rose 1.29% to $0.64914 as markets digested Trump’s tariff threat on EU imports and growing concerns over US debt levels.
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