The Australian dollar rose to around $0.629 on Friday, approaching a two-week high, as fears of an escalating global trade war eased. US President Donald Trump and Chinese President Xi Jinping are set to discuss potential tariff rollbacks, which has led to a sharp pullback in the US dollar.
Australian dollar marches toward two-week high
The prospect of a de-escalation in trade tensions between the world's two largest economies has calmed markets, as the absence of aggressive tariff measures would alleviate concerns about inflationary pressures. This, in turn, provides the Federal Reserve with more flexibility to cut interest rates further, supporting broader risk sentiment and bolstering demand for the Australian dollar.
RBA cut expected
Domestically, markets are anticipating that the Reserve Bank of Australia (RBA) will lower its cash rate by 25 basis points to 4.35% this month, amid easing domestic inflation and slowing economic activity. Despite global uncertainty, Australia’s domestic economy has shown signs of softening, with recent data indicating a slowdown in consumer spending and business investment. A rate cut by the RBA is seen as a way to support economic growth, particularly as inflation has moderated from its peak levels in recent months. Lower borrowing costs could help stimulate investment and spending, which could counterbalance the pressures on Australia's economy.
Australia trade surplus narrows in December
Data released earlier this week showed that Australia's trade surplus narrowed in December, as export growth slowed while imports picked up. The slowdown in exports, particularly to key markets like China, has raised concerns about the potential impact on Australia's economic growth moving forward. However, a stabilizing global trade environment could support Australian exports in the longer term, contributing to a more balanced economic outlook. As a result, the Australian dollar has been supported by the combination of easing global trade tensions and expectations of domestic policy adjustments by the RBA, making it more resilient against broader market volatility.
