The Australian Dollar (AUD) slipped against the U.S. Dollar (USD) on Monday, trimming gains from the previous session as market sentiment shifted amid a mix of global economic signals. The AUD/USD pair remains under pressure, hovering near recent lows, following the People’s Bank of China’s (PBoC) decision to leave its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively. Given Australia’s deep trade ties with China, any cooling in China’s economic momentum can directly impact AUD performance.
AUD Faces Headwinds From Trade Tensions and RBA Outlook
Mounting trade tensions between the U.S. and China continue to weigh on risk sentiment. Market participants are closely watching the August 12 deadline, by which China is expected to finalize a long-term tariff agreement with the U.S., following last month’s preliminary deal. The uncertainty surrounding this process adds to the cautious tone in AUD markets.
Further downside pressure comes from domestic expectations surrounding monetary policy. The Reserve Bank of Australia (RBA) is scheduled to release its Meeting Minutes this week, with economists forecasting a dovish tone. Projections suggest the RBA may begin cutting interest rates later this year, potentially reducing the cash rate to around 3.1% by early 2026. Investors are also eyeing a speech from RBA Governor Michele Bullock for additional forward guidance.
US Dollar Supported by Economic Strength and Cautious Fed Commentary
Despite short-term trade-related concerns, the U.S. Dollar continues to hold firm, buoyed by strong economic data and mixed messaging from Federal Reserve officials. The U.S. Dollar Index (DXY) trades near 98.50, as recent macroeconomic indicators point to economic resilience.
The University of Michigan’s preliminary Consumer Sentiment Index for July climbed to 61.8, above expectations and previous levels, indicating rising consumer confidence. Meanwhile, Retail Sales rose by 0.6% month-over-month in June, significantly exceeding the expected 0.1% increase. On a yearly basis, sales grew 3.9%, up from 3.3% in May.
Fed officials remain divided on the timing of rate cuts. Governor Christopher Waller supports a rate cut in July due to growing economic risks, while FOMC Governor Adriana Kugler insists rates should remain elevated for some time as tariff effects feed into consumer inflation. San Francisco Fed President Mary Daly offered a more moderate stance, calling two rate cuts this year “reasonable,” but also cautioned against waiting too long.
Producer inflation metrics offered a mixed picture. The June PPI remained flat, missing expectations of a 0.2% rise, while Core PPI rose 2.6% YoY, slightly below forecasts. The Fed’s Beige Book noted stable business activity but rising cost pressures, adding further complexity to the monetary outlook.
Geopolitical Headlines Add to Market Volatility
President Trump’s remarks last week added fuel to market uncertainty. In an interview, he hinted at his dissatisfaction with Fed Chair Jerome Powell, though acknowledged that forcing a resignation could disrupt financial markets. He also expressed optimism about reaching a deal with the EU and said progress with India on tariffs was “very close,” while declining to comment on Canada.
From the Chinese side, Commerce Minister Wang Wentao struck a more conciliatory tone, emphasizing the mutual benefit of U.S.-China trade ties and highlighting frameworks like the Geneva Agreement and London discussions as stabilizing factors.
China’s Economic Data Mixed but Resilient
China’s Q2 GDP expanded 5.2% YoY, just shy of Q1’s 5.4% but above the 5.1% forecast. On a quarterly basis, growth hit 1.1%, exceeding the 0.9% consensus. However, some soft spots emerged: Retail Sales grew 4.8% YoY, missing the 5.6% estimate, while Industrial Production surged to 6.8%, outperforming expectations.
Outlook: AUD/USD May Stay Range-Bound
With no major U.S. data due for release on Monday, the AUD/USD pair is likely to remain sensitive to headlines surrounding trade negotiations, central bank commentary, and upcoming RBA communications. Later in the week, global flash PMIs may inject fresh volatility into the pair, but for now, cautious trading is expected to persist.
