AUD/USD Slips as China’s Trade Surplus Narrows and US Tariff Threats Intensify

The Australian Dollar (AUD) weakened on Monday, slipping below 0.6560 against the US Dollar (USD) following weaker-than-expected Chinese trade balance data and rising global trade tensions. As China is Australia’s largest trading partner, the narrowing trade surplus weighed heavily on the Aussie, while escalating US tariff threats added to downside risks.

China Trade Data Misses Expectations

China’s June trade surplus came in at CNY 585.96 billion, down from CNY 743.56 billion previously. While exports grew 7.2% YoY—improving from April’s 6.3%—imports rose just 2.3%, recovering from May’s 2.1% decline. In USD terms, the surplus beat expectations, reaching $114.77 billion versus $109 billion forecast. Still, concerns remain about softening demand and its potential impact on Australia’s export-driven economy.

Despite a positive outlook from Chinese customs officials, the trade data failed to boost sentiment around the Aussie Dollar, given Australia’s high exposure to Chinese commodity demand.

BHP-CATL Battery Deal Offers Limited Relief

In an effort to diversify partnerships, Australian mining giant BHP signed a memorandum of understanding with China’s CATL to explore battery technology solutions for mining equipment, locomotives, energy storage, and recycling. While this supports long-term collaboration, it had little impact on immediate AUD/USD direction.

RBA Holds Steady, But Cut Still in Play

The Reserve Bank of Australia (RBA) recently surprised markets by holding rates steady at 3.85%, despite expectations of a 25bps cut. Governor Michele Bullock emphasized that inflation risks remain elevated, driven by weak productivity and rising unit labor costs.

Markets have since priced in an 80–90% chance of a rate cut at the August 12 meeting, with analysts forecasting a potential terminal rate near 3.10%. A Reuters poll also showed that 30 economists expect a rate cut in August, with Australia’s four major banks supporting this outlook.

US Tariffs and Fed Caution Add Pressure

Adding to the AUD’s troubles, US President Donald Trump announced a sweeping 30% tariff on goods from the EU and Mexico, effective August 1, while proposing a blanket 15–20% tariff on other countries. The EU has paused its retaliatory measures until early August in hopes of reaching a resolution.

Fed officials, including Austan Goolsbee, warned that ongoing tariff threats could limit the Fed’s flexibility in delivering rate cuts. June’s FOMC minutes indicated a wait-and-see approach to monetary policy, while strong customs revenue from tariffs contributed to a $27 billion US budget surplus in June.

China’s CPI & PPI Highlight Mixed Signals

China’s CPI rose 0.1% YoY in June, rebounding slightly from May’s -0.1%, while PPI dropped 3.6% YoY—worse than the expected -3.2%. Disinflationary pressure in China could weigh further on Australian exports and, by extension, AUD/USD.

Technical Outlook: AUD/USD Holds Above Key Support

At the time of writing, AUD/USD trades around 0.6560, holding slightly above the nine-day Exponential Moving Average (EMA) at 0.6555. The pair remains within an ascending channel on the daily chart, signaling a mild bullish bias.

• Immediate resistance is seen at Friday’s high of 0.6595, with further upside potential toward 0.6690, the upper channel boundary.
• Initial support lies at 0.6555 (9-day EMA), followed by 0.6520 and the 50-day EMA at 0.6487.

The 14-day RSI remains above 50, suggesting moderate bullish momentum. However, failure to hold above 0.6555 may lead to a short-term correction.

Conclusion

The Australian Dollar faces a challenging outlook as weaker Chinese trade data and escalating global tariff risks weigh on sentiment. While near-term technicals show resilience, external macroeconomic drivers—particularly from China, the RBA, and the Fed—will likely dictate the next big move in AUD/USD.

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