AUD/USD falls to near 0.6300 as risk aversion intensifies amid US tariff concerns

• AUD/USD weakens as the US Dollar strengthens on safe-haven demand amid rising risk aversion driven by US tariff concerns.
• Fed Chair Jerome Powell acknowledged the difficulty in evaluating the broader inflationary impact of tariffs.
• The Australian Dollar faces pressure as traders reassess the RBA’s monetary policy outlook following disappointing jobs data.

AUD/USD remains under pressure for a second consecutive day, hovering around 0.6300 during Asian trading on Friday. The pair struggles as the US Dollar (USD) strengthens, supported by safe-haven demand amid growing risk aversion linked to US tariff policies. Meanwhile, US bond yields are declining as investors flock to Treasuries in response to economic and geopolitical uncertainties.

Federal Reserve (Fed) Chair Jerome Powell downplayed the inflationary impact of tariffs, calling it temporary, but acknowledged the challenges in assessing broader effects. While recession risks have risen, Powell suggested they remain relatively low for now.

On the data front, US Initial Jobless Claims increased to 223K for the week ending March 15, slightly missing estimates of 224K and exceeding the previous week's revised figure of 221K (from 220K). Additionally, the Philadelphia Fed Manufacturing Survey for March eased to 12.5 MoM, down from February’s 18.1. This marked the second consecutive monthly decline, though the drop was less severe than the expected 8.5.

The Australian Dollar (AUD) also faces headwinds as traders reassess the Reserve Bank of Australia's (RBA) monetary policy stance following weaker-than-expected jobs data. Australia's unemployment rate remained steady at 4.1% in February, but an unexpected decline in employment raised concerns about labor market weakness.

The disappointing jobs report has fueled speculation that sustained labor market softness could provide the RBA with more flexibility to ease interest rates. However, RBA Assistant Governor Sarah Hunter noted earlier in the week that while the board acknowledged room to reduce policy restrictiveness—following the recent decision to ease—it remains more cautious than markets about additional rate cuts.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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