Trade War Escalation Hits Global Markets, Australian Dollar Tumbles

Last week, global markets were rattled by the latest developments in trade policy led by Donald Trump. His administration’s announcement of comprehensive tariffs triggered a wave of volatility across financial markets.

In response to rising trade tensions, China imposed a 34% retaliatory tariff on all U.S. imports, intensifying fears of a global recession.

Australian Dollar: Worst-Performing Major Currency

The escalation in trade tensions weighed heavily on the Australian Dollar (AUD), which dropped to 0.5930 against the U.S. Dollar—its lowest level since April 2020, during the peak of the COVID-19 pandemic.

The AUD also saw sharp losses against safe-haven currencies like the Japanese Yen and Swiss Franc, depreciating more than 5% in a single day on Friday.

This sharp decline is largely attributed to Australia’s close economic ties with China and its role as a major global exporter. With global trade under pressure from increased tariffs, demand for Australian exports—especially commodities—is expected to decline, adding further downside pressure on the AUD.

Known as a risk-sensitive currency, the AUD was hit hard as investors moved away from riskier assets amid rising trade uncertainty. The New Zealand Dollar (NZD) also suffered, ranking among the worst-performing majors due to similar economic exposure.

Global Risk Appetite and RBA Outlook

The recent escalation in trade tensions has fueled a risk-off environment, pushing investors away from riskier assets like the Australian Dollar (AUD). As global markets continue to face uncertainty due to tariffs and trade policies, the AUD is under increased pressure.

Given these challenges, the Reserve Bank of Australia (RBA) may adopt more accommodative monetary measures. While the RBA cut rates in February, it chose to pause in its most recent meeting, indicating that it will monitor global uncertainty before deciding on further cuts. If inflation continues to slow and the economy weakens, the RBA may act to stimulate growth.

The potential for rate cuts or dovish rhetoric from the RBA could add further downward pressure on the AUD, which is already struggling against the U.S. Dollar and safe-haven currencies like the Japanese Yen and Swiss Franc.

Outlook for the Australian Dollar

In the short term, the outlook for the Australian Dollar remains grim. With global trade under pressure from rising tariffs, the Australian economy faces significant headwinds, particularly in its export-heavy sectors.

(AUDUSD, 4-H Chart Analysis; Source: Ultima Markets MT5)

From technical perspective, the AUD/USD pair has seen a sharp decline over the past week. The next key support level to watch lies around 0.5900, with the potential for a further breakdown if the broader risk-off sentiment persists. On the upside, resistance is seen near the 0.6100 – 0.6110.

However, given the continued uncertainty surrounding global trade, the path of least resistance for the AUD remains skewed to the downside.

Disclaimer

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided.