The US-China trade conflict, ignited by former President Donald Trump in early 2018, continues to escalate with renewed vigor following his return to the White House as the 47th President. This longstanding economic battle has intensified global market volatility, particularly affecting major currency pairs such as GBP/USD and AUD/USD. As the US Dollar strengthens, buoyed by its safe-haven status, investors are closely watching the upcoming US ISM Manufacturing PMI release for January, set for 15:00 GMT.
In 2018, President Trump imposed tariffs of 10% on China and 25% on Canada and Mexico, marking the onset of an economic confrontation that reverberated worldwide. These trade barriers significantly impacted global trade dynamics and set off a chain reaction of retaliatory measures. China responded by imposing tariffs on numerous US goods, including automobiles and soybeans. The conflict's economic ramifications were felt across global markets, affecting currencies, commodities, and equities alike.
The negative shift in risk mood following Trump's tariff announcements fueled demand for the US Dollar, renowned for its safe-haven appeal. This upward momentum persisted when President Joe Biden maintained the tariffs upon taking office and introduced additional levies. The US Dollar Index (DXY) surged above 109.50, reflecting its strengthened position amid these tensions.
The Australian Dollar (AUD), regarded as a proxy for China's economic outlook, has experienced declining attractiveness amid this economic turmoil. The AUD/USD pair recently recovered slightly after hitting a fresh four-year low near 0.6100 but remains under pressure due to its close economic ties with China. As a leading trading partner of China, Australia bears the brunt of the economic conflict's repercussions.
Meanwhile, the GBP/USD pair has sustained its offered tone for five consecutive sessions, trading near 1.2300. The pair's performance underscores the pervasive uncertainty in global markets, amplified by ongoing geopolitical tensions. Market participants are closely monitoring upcoming economic indicators and central bank actions for insights into potential shifts in market sentiment.
The Reserve Bank of Australia (RBA) is widely anticipated to initiate interest rate reductions during its forthcoming policy meeting this month. This decision reflects growing concerns over the economic impact of the US-China trade dispute on Australia's economy. While the AUD/USD pair faces a sharp sell-off, investors remain vigilant for signals of recovery amid the prevailing bearish momentum.
Market analysts have noted that the 14-week Relative Strength Index (RSI) oscillates within the 20.00-40.00 range, indicating strong bearish momentum across various currency pairs. This technical indicator further highlights the prevailing downtrend in global currency markets, driven by geopolitical uncertainties and shifting economic conditions.
As investors await the publication of the US ISM Manufacturing PMI for January, market sentiment remains tense. The data release is expected to provide valuable insights into the health of the US manufacturing sector and its potential impact on global markets. Any significant deviation from expectations could trigger further volatility in currency pairs and influence central bank decisions in the coming months.