Shifting focus to the AUD/USD pair, US-China trade talks will influence demand for the Aussie dollar. US President Trump and Chinese President Xi Jinping will speak on Friday, September 19.
Why do US-China trade developments matter for AUD/USD traders?
Australia has a trade-to-GDP ratio of over 50%, potentially exposing the economy and the Aussie dollar to shifts in trade terms. Given that China accounts for roughly one-third of Aussie exports, reduced tariffs on China could boost external demand for Chinese goods, leading to stronger Aussie exports to China. However, stalled talks and an escalation in the US-China trade war may weaken external demand for Chinese goods, pressuring Aussie trade terms with China.
RBA Governor Michele Bullock previously commented on the influence of tariffs, demand from China, and the potential effect on RBA policy, stating:
“Australia’s economy could easily be compromised if a trade war between the US and China escalates. Depending on where we end up on trade developments, there might be more interest rate adjustments.”
Trade developments could potentially skew the RBA’s outlook on the economy and interest rates.
Progress toward a trade agreement, including lowering US tariffs on Chinese shipments, could lift sentiment. Conversely, stalled talks may fuel speculation about multiple RBA rate cuts, affecting investor appetite for the Aussie dollar.
AUD/USD: Key Scenarios to Watch
Bearish AUD/USD Scenario: An escalation in the US-China trade war or dovish RBA rhetoric may drag AUD/USD below $0.66.
Bullish AUD/USD Scenario: Progress toward a US-China trade deal or hawkish RBA chatter could send AUD/USD toward $0.67.
