The Australian dollar (AUD) is facing selling pressure as new tariffs announced by former US President Donald Trump threaten to impact Australian exports. The tariffs, expected to be imposed on multiple countries, have contributed to a decline in the AUD/USD pair, which slipped to approximately 0.6245 during early trading in the Asian session on Monday. As markets anticipate a potential trade war, the US dollar (USD) has edged higher, adding further strain to the Australian currency.
In a move that could significantly affect global trade dynamics, Trump announced plans to impose a 25% tariff on steel and aluminum imports. These tariffs are set to be implemented starting Monday and will not exempt Australia. Although the specific countries targeted by these tariffs have not been disclosed, the announcement has already stirred concern among market participants, leading to fluctuations in currency valuations.
The announcement of tariffs coincides with the release of the US Nonfarm Payrolls (NFP) data for January. The NFP revealed an increase of 143,000 jobs, a notable decrease from the 307,000 rise observed in December. Despite this slowdown in job creation, the US unemployment rate declined slightly to 4% in January from 4.1% in December, indicating a relatively stable labor market.
The Federal Reserve's response to these economic indicators has been to maintain its current stance on interest rates. Following the January jobs data, the Fed is expected to keep rates on hold throughout the year. This decision aligns with market expectations and reflects the central bank's cautious approach amid uncertain economic conditions.
Meanwhile, gold prices have surged to an all-time high, boosted by declining US Treasury bond yields. As investors seek safe-haven assets amid trade tensions and economic uncertainty, gold's appeal has increased, driving its value upward.
In 2024, Mexico emerged as the top exporter to the United States, with exports totaling $466.6 billion. Collectively, imports from Mexico, China, and Canada accounted for 42% of the total US imports during this period. This highlights the interconnected nature of global trade and underscores the potential impact of new tariffs on international economic relationships.
The announcement of tariffs has also influenced market expectations regarding wage inflation in the United States. In January, annual wage inflation, as measured by changes in Average Hourly Earnings, rose by 4.1% year-over-year, surpassing the anticipated market expectation of 3.8%. This increase suggests upward pressure on wages amid a tightening labor market.
Despite these developments, other currency pairs showed relative stability. The EUR/USD pair ended the week trading around 1.0370, experiencing minimal change from its previous weekly close of 1.0361. This indicates that while certain currencies are affected by trade-related news, others remain largely unaffected for now.