The Australian Dollar (AUD) edged higher against the US Dollar (USD) on Monday, with the AUD/USD pair trading around 0.6380 during the Asian session. The pair remains buoyed by broad-based USD weakness and renewed optimism surrounding select exemptions in the ongoing US-China trade standoff.
Investor risk sentiment improved after US President Donald Trump announced that key technology products—such as smartphones, laptops, semiconductors, solar cells, and flat-panel displays—would be excluded from a fresh wave of “reciprocal” tariffs. The exemptions largely benefit Chinese exports, indirectly supporting Australia’s economic outlook due to its close trade ties with China, its largest trading partner and a major consumer of Australian commodities.
Meanwhile, markets are closely monitoring developments in US-China trade discussions, as tensions between the two economic powerhouses continue to escalate. The backdrop of geopolitical friction has heightened global uncertainty, but the prospect of targeted exemptions has offered temporary relief to risk-sensitive currencies like the Aussie.
However, downside risks remain for the AUD, with attention turning to domestic monetary policy. Ongoing trade tensions have clouded Australia’s economic outlook, prompting increased speculation over further rate cuts by the Reserve Bank of Australia (RBA). Markets are currently pricing in a 25 basis point cut as soon as May and as much as 120 bps of easing through the rest of the year.
Adding to the focus on China, the People’s Bank of China (PBoC) is expected to hold its benchmark lending rates steady in its monthly fixing later Monday, according to a Reuters poll. However, with economic headwinds intensifying, traders are betting that additional stimulus from Chinese authorities may be on the horizon, which could continue to support demand for Australian exports and cushion the Aussie’s downside.
In the near term, the AUD/USD remains supported by global USD weakness but is vulnerable to shifts in risk sentiment and RBA policy expectations.
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