Australian Dollar Climbs as US-China Trade Breakthrough Spurs Risk Appetite.
A glimmer of hope from Geneva
The Australian Dollar (AUD) rose for the second consecutive day on Monday, riding the wave of renewed optimism stemming from progress in US-China trade negotiations. The AUDUSD pair, which had struggled under the weight of global economic uncertainty, found fresh momentum as both economic and diplomatic developments pointed to easing tensions between the world’s two largest economies. As Australia’s economic performance is closely intertwined with that of China—its largest trading partner—any improvement in Chinese trade dynamics has significant ripple effects on the Aussie Dollar.
US-China Trade Talks Fuel Risk-On Sentiment
Markets responded positively to the outcome of two days of trade negotiations in Geneva, where high-level officials from the US and China engaged in dialogue to reduce the escalating $400 billion trade imbalance. China’s Vice Premier He Lifeng hailed the discussions as “an important first step” in stabilizing relations, while US Treasury Secretary Scott Bessent and Trade Representative Greer characterized the talks as productive and constructive.
This sentiment lifted global equities and supported risk-sensitive currencies like the AUD, which often benefits when geopolitical tensions abate and investors grow more confident in global growth prospects.
DXY Weakens as Australian Dollar Gains Traction
The US Dollar Index (DXY), which measures the greenback’s strength against a basket of six major currencies, slipped for the second straight day, hovering around 100.60. Although the Trump administration reported some success in weekend trade talks, the risk-on environment has dampened safe-haven demand for the USD.
The weakening DXY provided additional upward pressure on the AUDUSD pair, enabling the Australian Dollar to punch through near-term resistance levels.
Tariffs and Trade: The Numbers Behind the Headlines
Despite diplomatic progress, the existing tariff environment remains a significant headwind. The US continues to impose steep tariffs—up to 145%—on Chinese imports, while Beijing maintains retaliatory measures averaging 125% on American goods. Commerce Secretary Howard Lutnick confirmed that the US’s 10% baseline tariff on other countries is unlikely to change in the near term, suggesting that while dialogue has improved, tangible policy shifts may still be far off.
Nonetheless, the positive tone has reduced short-term volatility in the forex market and encouraged a more bullish view on the AUD.
Fed Maintains Policy, But Powell Cautions on Trade Risks
Last week, the Federal Reserve left its benchmark interest rate unchanged at 4.25%–4.50%, in line with market expectations. However, Fed Chair Jerome Powell issued a cautionary message, warning that persistent trade tariffs and policy instability could undermine the central bank’s dual mandate of controlling inflation and supporting employment.
Powell’s “wait-and-see” posture added to speculation that the Fed may delay further rate hikes unless inflation or labor markets show clear directional movement. Such dovish undertones have weakened the USD outlook in the near term, giving the AUD more room to appreciate.
Chinese Economic Data Sends Mixed Signals
China’s domestic data releases over the weekend offered a mixed economic picture. The Consumer Price Index (CPI) fell by 0.1% year-over-year in April, marking the third straight month of deflation and aligning with both market expectations and the prior month’s decline. Meanwhile, the Producer Price Index (PPI) contracted by 2.7% YoY, worse than the 2.6% forecast and extending the 2.5% decline recorded in March.
The data highlight continued challenges in domestic demand and industrial pricing power, potentially influencing Beijing’s future stimulus decisions. Although deflation typically weighs on risk sentiment, the upbeat trade news temporarily outweighed these concerns in forex markets.
China’s Trade Surplus Shrinks, But Exports Surprise
China reported a trade surplus of $96.18 billion in April, beating the forecast of $89 billion but falling short of March’s $102.63 billion. Notably, exports rose 8.1% YoY, far exceeding expectations of a 1.9% gain, though decelerating from March’s 12.4% surge. Imports, on the other hand, dipped by a milder-than-expected 0.2%, compared to forecasts of -5.9% and March’s -4.3%.
Most significantly for Australia, China’s trade surplus with the US narrowed to $20.46 billion, down from $27.6 billion in March. This narrowing reflects not only the impact of tariffs but also an early sign that efforts to rebalance trade may be taking effect.
Chinese Real Estate Reform Could Reshape Long-Term Outlook
In another key development, Beijing is reportedly considering banning the pre-sale of properties—a radical shift in the real estate market model. Under the proposed policy, only completed properties could be sold to consumers, with exceptions made for public housing projects. This move is aimed at stabilizing the housing sector and protecting homebuyers from failed or delayed projects.
While this policy could lead to short-term disruptions in construction and investment, it may restore confidence in the real estate market over time—ultimately benefiting broader Chinese economic stability, which in turn supports Australian export demand for iron ore and construction materials.
Domestic Data in Focus for the Aussie Dollar
Investors are now turning their attention to upcoming Australian data, particularly May’s Westpac Consumer Confidence and April’s NAB Business Conditions figures, both scheduled for release on Tuesday. Weakness in consumer sentiment or business performance could amplify expectations that the Reserve Bank of Australia (RBA) may lower interest rates later this month.
April’s Ai Group Industry Index, although slightly improved, marked the 33rd consecutive month of contraction, driven largely by struggles in export-dependent manufacturing. Given this backdrop, markets are increasingly pricing in a 25-basis-point rate cut to 3.85%, especially if the upcoming data disappoints.
Technical View: AUDUSD Remains Bullish in Near Term
From a technical standpoint, the AUDUSD pair is gaining traction above the 0.6650 mark, with bulls eyeing resistance near 0.6710. A break above this level could open the door to 0.6780. On the downside, support remains firm at 0.6590, followed by the 50-day moving average around 0.6550.
Momentum indicators such as RSI are turning bullish, and moving averages are beginning to converge, further strengthening the near-term bullish case—particularly if trade optimism persists and US inflation data this week underwhelms.
Conclusion: Trade Diplomacy Breathes Life Into the Australian Dollar
While fundamental challenges remain in both the Chinese and Australian economies, the recent thaw in US-China trade relations has provided a much-needed boost to market sentiment. For the Australian Dollar, which thrives on global risk appetite and Chinese demand, this development has shifted the short-term outlook to the upside.
As the week progresses, AUD traders will be closely monitoring domestic indicators and US inflation reports for further clues on central bank policy direction and global economic health. Until then, the Aussie appears to have found solid footing—buoyed by trade diplomacy, improving export trends, and a weakening US Dollar.
https://voiceoftraders.com/analysis/gold-price-slides-toward-one-week-low-as-trade-optimism-grows
