The US Dollar was one of the biggest Tuesday winners, so let’s take stock. This rally was driven by President Donald Trump’s decision to keep 50% tariffs on Eurozone imports suspended until July 9. That positive regulatory announcement came after a lackluster report on US Durable Goods Orders for April, which came in well below expectations. The orders fell about three times as much as economists had predicted. The US Dollar Index (DXY) rocketed up to close to 99.40. This increase represented a strong recovery from a weekly low of 98.70 set earlier in the week.
Economists had been expecting a large 7.9% decrease in Durable Goods Orders. This forecast underlines the concern for economic growth and consumer confidence. As a result, weak data raised alarms about its possible effects on the broader economy. In reality, Trump’s tariff suspension gave markets a false sense of hope. The resulting boost to optimism was evident in the AUD/USD currency pair on Tuesday. During North American trading hours, it corrected to just above the 0.6450 key support area, backtracking from Wednesday’s six-month high of 0.6537.
Traders continued to digest the impact of the tariff suspension and new economic data. This analysis helped kickstart a wave of cautious optimism for the possible launch of US/EU trade negotiations. Analysts cautioned that this attitude was only feeding into the currency volatility.
“I would guess strength in the US Dollar is because Trump retreated over the weekend. Yesterday, markets were closed, so there was only a small move. Now, with the UK being back, it’s a recovery of the move we saw on Friday,” – analysts at Commerzbank.
The recent developments come as investors are waiting for Australian Monthly CPI data for April with bated breath. On the consumer price index (CPI) front, analysts are forecasting moderation with increases of 2.3% y-o-y which is marginally less than March’s growth of 2.4%. This data is hugely important for understanding inflation trends in Australia and could steer future monetary policy decisions.
It is no accident that President Trump has suspended tariffs. This decision arrives at a highly symbolic moment because trade relations between the US and EU remain frayed. The measure would relieve a bit of the burden on imports, which could help create a more favorable climate for trade negotiations.
Community impacts
On a macroeconomic level, the most recent Durable Goods Orders report reinforces some dire, widespread trends in US manufacturing. The steep drop off makes us wonder about overall resilience with an unpredictable economic environment as we’re still in recovery mode after the pandemic.
The volatile AUD/USD exchange rate presents a great example of how markets respond to economic data. Importantly, it paints a picture of the interconnectedness of global trade dynamics. Just as the US dollar benefits from every bit of urgency generated by the ever-shifting trade saga, it weighs on the Australian dollar.