The Australian dollar dropped around 2% to below $0.61, reaching its lowest levels since April 2020, as new US tariffs raised concerns about the potential for a global trade war, triggering a broad selloff in risk assets.
Australian dollar drops against US counterpart
The US imposed 25% tariffs on goods from Mexico and Canada and a 10% levy on imports from China, prompting retaliatory measures from the affected countries. Although Australia was not directly targeted by the new US tariffs, its economy, which is heavily reliant on exports and free trade, remains vulnerable to global trade disruptions, particularly as its key trading partners face escalating trade barriers.
Retail sales decrease
Adding to the pressure on the Australian dollar, recent economic data revealed a 0.1% decline in Australian retail sales for December, marking the first drop in nine months. This slowdown, coupled with weaker consumer sentiment, further supported expectations of a dovish stance from the Reserve Bank of Australia (RBA). Many analysts are now predicting that the RBA could initiate rate cuts as early as this month, particularly after a sharp slowdown in inflation, which has led to growing concerns over domestic economic weakness.
What to expect from RBA
The combination of global trade uncertainties and a deteriorating domestic outlook has prompted traders to reassess the RBA’s monetary policy outlook, with markets now pricing in the possibility of further easing measures. In turn, these factors have added pressure on the Australian dollar, with investors closely monitoring upcoming economic indicators for additional clues about the trajectory of both the Australian and global economies.
