The Commonwealth Bank of Australia (CBA) notes that the Australian dollar (AUD) has encountered difficulties since the election of Donald Trump. Increased trade war risks from Trump are seen as factors affecting the AUD’s trajectory.

China is expected to influence the AUD’s outlook, particularly in response to trade threats. The annual session of China’s National People’s Congress is set to begin, with anticipated government spending aimed at countering the impact of higher U.S. tariffs on Chinese imports.

A larger-than-expected stimulus in China may have a positive effect on the AUD, New Zealand dollar (NZD), and Chinese yuan (CNH).

We note that the Australian dollar has struggled since Donald Trump’s election, largely due to market concerns about trade disputes. His stance on tariffs and potential trade restrictions has introduced uncertainty, which tends to weigh on currencies like the AUD.

China remains a key factor in shaping where the AUD trades next. With the upcoming National People’s Congress, all eyes will be on how much Beijing plans to inject into its economy. More government spending could help cushion the negative effects of U.S. tariffs on Chinese exports. If policymakers in Beijing decide to introduce broader stimulus measures, this could lend support to not only the AUD but also the NZD and CNH.

Timing is everything. If the stimulus package exceeds expectations, the market reaction is likely to be swift. Traders will be looking at how these funds are deployed—whether through infrastructure projects, tax cuts, or other economic initiatives. A more aggressive approach from Beijing could boost confidence in the region’s financial markets.

On the other hand, if spending measures fall short, concerns around weaker Chinese economic activity could drag down the AUD. A muted response from policymakers would likely reinforce broader fears about slowing global trade, which tends to push investors toward safer currencies.

At the same time, it’s necessary to consider how the U.S. dollar reacts. If Washington escalates trade threats, the USD could strengthen, creating additional pressure on risk-sensitive currencies. Any indications of policy shifts—from either side—could lead to sharp price swings.

Markets are also weighing other factors. Interest rate expectations in Australia and the U.S. will continue to shape currency movements. If the Reserve Bank of Australia signals a softer stance while the Federal Reserve leans in the opposite direction, the outcome could further disadvantage the AUD.

Monitoring these developments closely is essential. While China’s response will play an influential role in the next move for these currencies, external factors remain equally important. Traders should be prepared for sudden movements in either direction, depending on how authorities in both Washington and Beijing choose to proceed.