The Australian Dollar (AUD) traded flat near 0.6275 against the US Dollar (USD) during the early Asian session on Wednesday, as market participants adopted a cautious stance ahead of US President Donald Trump’s anticipated reciprocal tariff announcement. Investors are also awaiting the release of the US March ADP Employment Change report, which could provide further insights into the labor market.
Trump’s Tariff Threats Weigh on Aussie Sentiment
Trump is set to impose additional tariffs on US trading partners on Wednesday, which could include further tariffs on Chinese goods. Since taking office, Trump has already imposed a 20% tariff on all Chinese imports, citing Beijing’s failure to adequately control the flow of chemicals used to produce fentanyl, a deadly drug, into the US. The potential escalation of the US-China trade dispute poses a risk to the Australian Dollar, given China’s significant role as Australia’s top trading partner.
RBA Holds Rate Amid Inflation Concerns
On Tuesday, the Reserve Bank of Australia (RBA) decided to keep the Official Cash Rate (OCR) unchanged at 4.10% following its April policy meeting. The central bank expressed caution over inflation‘s future trajectory and indicated concerns about whether inflation will continue to moderate as expected. RBA Governor Michele Bullock emphasized that policymakers must proceed carefully and refrain from making hasty decisions on monetary policy. Bullock also clarified that the board did not discuss a rate cut during the meeting and had not made a definitive decision on any potential rate changes for May.
Support from Positive Chinese Economic Data
Despite the trade tensions, positive economic data from China is providing some support to the Australian Dollar, which is often seen as a proxy for Chinese economic health. China’s Caixin Manufacturing PMI for March improved to 51.2, surpassing the expected 51.1 and up from 50.8 in February. This data indicates that China’s manufacturing sector is expanding, which bodes well for Australia’s export prospects.
As traders await further developments, the outlook for AUD/USD remains clouded by geopolitical uncertainties, with the market keenly focused on Trump’s tariff decisions and upcoming economic data from the US.
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