One of president Donald Trump’s many controversial policies has scared financial markets, especially in the foreign exchange (FX) sphere. Since moving into the White House, he’s continued to make incendiary remarks about tariffs and trade. These extraordinary actions have raised eyebrows on wall street. The announcement of tariffs on all trading partners on April 2, dubbed “Liberation Day,” marked a pivotal moment that sent ripples through global markets.
It’s no secret that Trump’s trade policy was at least half the time a roll of the dice. He’s done so by vacillating between extreme hawkishness and willingness to compromise, resulting in a yo-yo effect on risk-sensitive assets. As stakeholders attempt to gauge the implications of his policies, they witness dramatic shifts in market sentiment. Equities often tumble when the outlook appears dire, while rebounds occur when Trump adopts a softer stance.
The Tariff Strategy and Market Reactions
Once Donald Trump was in office, he immediately started to frame tariffs as the centerpiece of his economic policy. His biggest target has been China, which he sees as America’s biggest perpetrator of economic warfare against the United States. This pivot to China strikes a chord with Atalian markets, since it is one of their major trading partners.
Just a few days ago, on April 2, the market was rocked by surprise when Trump threatened tariffs on all of America’s trading partners. Participants in the market responded quickly resulting in significant volatility in the FX market. Take, for example, the former hegemonic strength of the US dollar. Today, it is on the defensive, losing ground against almost all its major peers. This change comes amid growing anxiety over the long-term impact of a continued trade war on global economic prosperity.
The erraticism and chaos of Trump’s trade strategy has created an atmosphere of uncertainty. Investors have noted that risk-on assets, like the stock market, usually go down when there’s bad news about a trade deal. Every time Trump suggests he’s open to negotiations or willing to come to some sort of agreement, markets surge back up. This ping-pong effect still sets the tone for where investments go and how investors view the markets.
The Australian Dollar and Its Correlation with Global Trends
As the trade war heats up, the Australian dollar (AUD) has shown an unusual response Trump has triggered. AUD/CHF has a better inverse correlation than USD/CHF AUD correlation with the Australian dollar against the US dollar (USD/CHF). This trend really shows the increased correlation that AUD/CHF has had with the S&P 500 stock market index. This trend is yet another sign that Australian markets are increasingly influenced by global economic trends. American trade policies have a huge influence, and that’s where this link comes in.
The AUD/CHF pair, after reaching a nadir of 0.5000 recently was back in recovery mode. This recovery marks a new turning point in market dynamics. Currently, it is approaching an important resistance area of 0.5335-0.5360. Speculators have been watching these fibs to see if they become a sign of reliable upward momentum.
Even after this recovery, the AUD/CHF pair is still below the downtrend line drawn from its own top of July 11. According to analysts over at Westpac, a AUD/CHF break above 0.5495 would be enough to change their forecast from being bearish AUD into neutral territory. In a similar vein, a move above 0.5755 would indicate the beginning of an uptrend for this currency pair.
Commodities and Broader Economic Implications
Along with the broader impact of currency pairs, commodities have been largely impacted by the influx of Trump’s tariffs and overall trade policies. Significantly, gold price jumped to an all-time high, reaching around $3,500 on April 22. This increase has been largely driven by escalating investor demand for safe-haven assets in a climate of persistent trade tensions and global economic uncertainty.
This complex dynamic between Trump’s tariff strategies and agriculture commodity prices highlights how deeply interconnected our global markets have become. The trade war is getting more intense. In response, investors are pouring into gold and other safe-haven assets to hedge against instability in the currency and equity markets.