Since Australia buys more from the US than it sells, it is not particularly frightened by Donald Trump’s trade threats. The potential retaliatory measures may be more severe than those from the EU or China. However, the AUDUSD pair is facing some challenges. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Australia may avoid tariffs on steel and aluminum.
- The Reserve Bank of Australia will not rush to reduce the cash rate.
- Weakening of the aussie risks fuelling inflation.
- Buy the AUDUSD pair with the targets at 0.635 and 0.64 after the US CPI data release.
Daily Fundamental Forecast for Australian Dollar
There are always exceptions to the rules. If Australia is indeed the only exception to Donald Trump’s 25% tariffs on steel and aluminum, the AUDUSD rally will continue. After a strong start in 2025, the Australian dollar plummeted to its lowest levels since the pandemic but quickly recovered, reclaiming its position among the top G10 currencies, ranking just behind the Japanese yen.
Following the announcement of duties on metal imports, President Trump indicated a willingness to consider exemptions for Australia, a possibility facilitated by his dialogue with the Australian prime minister, Anthony Albanese. However, subsequent remarks by Peter Navarro, a senior adviser to the White House, have led to speculation about the viability of these exemptions, citing concerns that Australia is negatively impacting the US aluminum market. In 2024, primary metal exports from Australia to the US increased by 103% compared to the 2015–2017 average.
Notably, the AUDUSD pair benefited from Australia’s relative resilience to trade conflicts, as it exports less of its goods to the US than it imports. However, a 10% tariff imposed on its primary trading partner, China, and expectations of the reserve bank’s monetary policy easing cycle start have negatively impacted the aussie. Despite these challenges, the AUDUSD pair has displayed remarkable resilience and is showing signs of recovery.
Economic Indicators and RBA Cash Rate Trends
Source: Bloomberg.
The RBA is unlikely to hastily implement a cash rate cut. The labor market remains robust, with unemployment holding at 4%. The retail sales figures are also positive, declining by a modest 0.1% in December, which is significantly better than the gloomy forecasts. Besides, November figures were revised upwards afterward. Since reaching peak levels in September, the Australian dollar has depreciated by about 10% against the US dollar, which poses a risk of increasing inflation and prompts the central bank to proceed with great caution.
The key rate is expected to be cut from 4.35% on 18 February, although a rapid decline is not anticipated. Australia is not facing the challenge of saving the economy from trade wars. If it manages to reach an agreement with the White House on an exemption for steel and aluminum tariffs, the AUDUSD bulls will have a significant incentive to maintain their upward pressure. Conversely, if Donald Trump does not concede, bulls will be forced to retreat.
Daily Trading Plan for AUDUSD
In the short term, the AUDUSD pair will be influenced by the release of US inflation data for January. If the consumer price index and core CPI rise beyond the expected figures of 2.9% and 3.1%, respectively, as predicted by Bloomberg experts, one may consider short trades with the target at 0.622. If the data aligns with the forecasts, consider long trades with targets at 0.635 and 0.64.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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