The Australian dollar is coming off a nasty week, declining 1.6%, and the slide has continued on Monday. AUD/USD fell as In the European session, AUD/USD is trading at 0.6146, down 1% on the day. Earlier, the Australian dollar fell as low as 0.6082, its lowest level since April 2020.
Trump Tariffs, China PMI Send Aussie Reeling
It has been a dismal start to the trading week for the Australian dollar. There are two factors behind the Aussie’s latest troubles. First, US President Trump has imposed 25% tariffs on Mexico and Canada, effective Tuesday. Mexico and Canada have both announced retaliatory tariffs in response, in what could quickly spiral into a full-blown trade war in the world’s largest trade zone.
Trump has also said he will go ahead on Tuesday with 10% tariffs against China, the world’s second-largest economy. Global markets have been hit by fears of a global trade war resulting from the US tariffs and the Australian dollar, a risk curency, has been hit hard.
The Australian dollar has also reacted negatively to weak data out of China. The Caxain Manufacturing PMI slowed in January to 50.1, down from 50.5 in December and shy of the market estimate of 50.5. The reading was barely above the 50 level that separates expansion from contraction and indicated stagnation in factory activity.
Domestic demand improved in January but this was offset by a decline in export orders, as manufacturers rushed to ship orders in December to avoid the US tariffs. China’s government has introduced stimulus measures to prop up the economy and there has been improvement, such as in domestic demand. However, the Trump tariffs and a possible all-out trade between China and the US will hurt growth in both countries. So far, China has refrained from announcing retaliatory tariffs but China is unlikely to continue pulling its punches once the US tariffs take effect.
AUD/USD Technical
- AUD/USD is testing support at 0.6131. Below, there is support at 0.6062
- There is resistance at 0.6171 and 0.6240