Above: Terminal, Shanghai, China. Image © Adobe Stock
Trade-related risks for AUD are set to re-emerge as key deadlines approach.
The Australian Dollar faces renewed downside pressure as tariff risks tied to U.S. trade policy re-emerge, with key deadlines in July and August posing significant volatility threats, Commonwealth Bank of Australia (CBA) says in a new note.
CBA says, "U.S. tariff policy is far from settled" and highlights the July 9 deadline for a series of trade agreements. If progress stalls, CBA expects the U.S. to "lose patience and reinstate unilateral tariffs," either broadly or against specific countries, in a move that markets have not yet priced in.
"AUD/USD could slump by several cents over a few days around 9 July as it did in early April," FX researchers at the Australian lender say.
CBA also points to August 12 as the expiry date of a second pause on tariffs affecting Chinese imports, a critical factor given Australia's heavy trade reliance on China.
CBA cited a recent post from U.S. President Donald Trump indicating that China could apply a 10% tariff on U.S. goods, while the U.S. may counter with a punitive 55% rate.
"That high tariff rate remains a major weight on the global economy, and by extension is a downside risk to AUD/USD," CBA says.
The call comes amidst a spell of mixed AUD outperformance, with the currency holding an advance against the U.S. Dollar and half of its G10 currency peers over the past month.
Above: GBP/AUD at daily intervals. The annotations are part of our Week Ahead Forecast from Monday, showing an expectation for weakness, followed by a potential rebound. The setup remains promising.
However, if we recall early April price action, the currency is very sensitive to negative trade developments.
Analysts at Barclays say Australia's exposure to Chinese trade leaves AUD especially vulnerable, even as recent de-escalations between Washington and Beijing provide some relief.
Yet, with tariff rates still "almost six times higher than before Trump re-entered office," structural headwinds to global growth and commodity-linked currencies like the AUD persist, say researchers at Barclays.
CBA’s trade warning also comes at a critical time for monetary policy.
Morgan Stanley raises the July Reserve Bank of Australia (RBA) meeting as potentially consequential for AUD performance. With a 19bp rate cut priced in, a policy hold could provide a short-term boost to the currency.
However, the RBA’s path is increasingly influenced by global developments beyond its control.
While domestic data has been mixed, with Q1 GDP disappointing but household spending showing resilience, the AUD’s high-beta status leaves it exposed to global shocks.
Nomura's strategists highlight the AUD’s correlation to global equity markets, underscoring how quickly risk sentiment can shift on geopolitical developments.