AUD/USD: US-China Trade Developments in Focus
Turning to the AUD/USD pair, the US and China will kick off a third round of high-level trade talks on July 28. Progress toward a trade deal could boost demand for the Aussie dollar.
China accounts for around one-third of Aussie exports. Given Australia’s trade-to-GDP ratio of over 50%, a trade deal may boost demand for Chinese goods, driving Aussie exports. Improving trade terms could signal a pickup in economic momentum, supporting a less dovish RBA rate path and Aussie dollar appetite.
On the other hand, stalled trade talks and the threat of higher US tariffs on Chinese goods could weigh on the Aussie dollar.
RBA Governor Michele Bullock recently referred to the importance of demand from China and Beijing’s policy moves, stating:
“On tariffs, there will be an impact on us, partly driving deflationary forecasts, but the impact on Australia will likely be less severe than on the US. Trade terms with China remain crucial. If China bolsters its economy with fiscal stimulus, that could cushion the impact of tariffs on Australia’s economy.”
AUD/USD: Key Scenarios to Watch
- Bearish AUD/USD Scenario: Stalled US-China trade talks, dovish RBA signals, or Beijing’s silence on stimulus. These factors could push AUD/USD toward the $0.6550 level, exposing the 50-day EMA.
- Bullish AUD/USD Scenario: A US-China trade deal, hawkish RBA rhetoric, or new stimulus measures from Beijing. These factors could send AUD/USD toward the $0.66 level, bringing $0.6650 into sight.
Click here for a more comprehensive analysis of AUD/USD trends and trade data insights.
AUD/USD Daily Outlook: Dallas Fed Manufacturing Index and Rate Differentials
Later today, the Dallas Fed Manufacturing Index could influence US-Australian interest rate differentials and US dollar demand.
Better-than-expected numbers could signal improving demand and temper bets on a September Fed rate cut. A more hawkish Fed rate path would widen the rate differential in favor of the US dollar, dragging AUD/USD toward $0.6550. Sustained selling pressure may enable the bears to target the 50-day EMA.
However, a lower reading may indicate demand weakness, raising expectations of a Q3 Fed rate cut. A more dovish Fed policy stance could narrow the rate differential and send AUD/USD toward the $0.66 level. A sustained move above $0.66 would bring the $0.6650 level into play.