File image of Anthony Albanese. Source and licensing: Anthony Albanese official on Flickr.
U.S. tariffs on Australian exports are not helping AUD.
The Australian Dollar has weakened further into oversold territory against the Pound and Euro after the U.S. confirmed there would be no carve-out for Australian exports of steel and aluminium.
The confirmation of the 25% US tariff marks a shift from Trump's first term, when Australia was granted an exemption.
This is a remarkable turn of events as we reported on February 11 that the Australian Dollar had firmed following news that Australia would not be subject to these tariffs on steel and aluminium.
Expectations for relief followed a phone call between U.S. President Donald Trump and his counterpart, Anthony Albanese.
Albanese said at the time that he successfully made the case for an Australian exemption, making the decision by the U.S. to proceed something of a shock.
Although exports of steel and aluminium are a minor foreign exchange earner for Australia, analysts confirm the Aussie Dollar remains exposed to the negative hit to its trading partners from the deepening global tariff war.
"The bigger issue for Australia is how U.S. tariffs impact trade with its largest trading partners, China, Japan and South Korea because ultimately they will determine the demand fo Australia's exports and GDP," says a note from TD Securities.
David Forrester, Senior FX Strategist at Crédit Agricole, says investors are losing faith in the ‘Trump trade’ and are pulling back on risk, which is particularly troublesome for AUD.
Falling U.S. equity markets reflect this loss of confidence, which is spurring Australian Dollar weakness.
Crédit Agricole's research reveals the AUD, USD and NZD have displayed the strongest negative correlations with risk in global FX, meaning tariff headlines are proving particularly damaging to these currencies.
Crédit Agricole's bespoke measure of FX risk has this week reached its highest level since late October.
"Particularly concerning for investors is the president’s apparent indifference to the weakening US equity market, saying there will be 'a little disturbance' as well as a 'period of transition' as his policies restructure the economy, and that this is acceptable to him," says Forrester.
Since Trump’s election and for a period post his inauguration, investors had been assuming Trump was using tariff threats as a negotiating tactic and that a weakening equity market would temper his most extreme policies.
"At present, both assumptions appear to be incorrect," adds Forrester.
Above: GBPAUD at daily intervals with the RSI in the lower panel, which is screaming of overbought conditions.
The Pound-to-Australian Dollar exchange rate's rally takes it to 2.0604 at the time of writing midweek, its highest level since March 2020.
The climb takes GBP/AUD further into overbought territory, with the Relative Strength Index reading at 77.85, levels last seen in July 2024.
The RSI has a mean-trending tendency, meaning it will inevitably fall back down; for this to happen, GBP/AUD must enter a period of sideways consolidation or retreat.
We think this will likely happen in the near term.