The AUD/USD pair dropped to a three-week low near 0.6200, reflecting a six-day decline attributed to US President Trump’s proposed 10% tariffs on China. These tariffs are expected to exert additional pressure on the Australian economy, which relies heavily on exports to China.

Trump’s recent tweet also confirmed the implementation of 25% tariffs on Canada and Mexico starting March 4. The imposition of these tariffs is likely to further challenge Chinese economic growth, indirectly impacting the Australian Dollar.

Reserve Bank of Australia’s Deputy Governor indicated no imminent interest rate cuts are expected, pending positive inflation data. Meanwhile, market attention is focused on the US Personal Consumption Expenditure Price Index data set to be released.

Australia’s economic health is influenced by interest rates, the status of the Chinese economy, and commodity prices, primarily iron ore. The Trade Balance also plays a critical role in determining the value of the Australian Dollar, as a positive balance typically strengthens the currency.

The continued weakening of the Australian Dollar against the US Dollar is not just about tariffs and trade disputes. While Trump’s plans to introduce 10% tariffs on China and to proceed with hefty duties on Canada and Mexico grab headlines, they also send ripples through global markets. Given that Australia’s economy is closely linked to China’s performance, any slowdown there has consequences. With Chinese exports weakening, demand for Australian commodities could fall further, putting exporters under strain.

We also heard from the Reserve Bank of Australia’s Deputy Governor, who stated that interest rate cuts are off the table for now. Instead, they are watching inflation figures closely. If the data shows stronger-than-expected inflation, monetary policy could remain unchanged. But if price increases lag behind expectations, pressure might mount for a policy shift. It’s a waiting game, and traders should take note.

Another upcoming event that could shake things up is the US Personal Consumption Expenditure Price Index release. This is the Federal Reserve’s preferred inflation measure, and any surprises in the data could change expectations about future US interest rate decisions. If inflation comes in higher than analysts predict, the Federal Reserve might hold rates higher for longer, making the USD more attractive. If the opposite happens, expectations could shift towards rate cuts. Either scenario will have ripple effects on AUD/USD positioning.

Beyond macroeconomic policies, Australia’s dollar depends on iron ore prices and trade balances. A positive trade balance generally supports the currency as more foreign buyers purchase Australian goods and convert their money into AUD. If trade figures disappoint, however, that support fades. Given how much Australia exports to China, any further deterioration in the Chinese economy could weaken the AUD further in the coming weeks.

With several moving parts at play, traders should be prepared for volatility. The next wave of inflation and trade data from both the US and Australia could determine whether the AUD/USD extends its downward trend or finds some footing. We will be watching these developments closely.