The Australian Dollar (AUD) extended its decline against the US Dollar (USD) on Friday, plunging to a one-month low after US President Donald Trump threatened a “massive increase” in tariffs on Chinese imports.
The remarks reignited fears of a renewed trade war between the world’s two largest economies, prompting a broad sell-off in risk-sensitive assets. At the time of writing, AUD/USD trades around 0.6484, down nearly 1% on the day and on course for a weekly loss.
Trade war fears weigh on the Aussie
Given Australia’s heavy reliance on China as its largest trading partner, the renewed rhetoric surrounding tariffs immediately pressured the Australian Dollar. Investors moved to unwind risk exposure amid growing uncertainty over global trade relations. The escalation comes at a time when markets were already struggling with subdued risk appetite due to political tensions in Japan and Europe.
US Dollar eases as trade tensions cloud outlook
Despite the AUD’s sharp drop, the Greenback also lost ground against most major counterparts as Trump’s comments reignited concerns about the potential fallout for the US economy. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, snapped a four-day winning streak, slipping 0.38% to around 99.00 after touching a two-month high earlier in the week.
In a post on Truth Social, Trump accused China of becoming “very hostile,” claiming that Beijing had sent letters to several countries outlining plans to restrict exports of rare-earth elements and other critical materials.
He described the move as an effort to “clog the markets” and warned that Washington is considering a “massive increase of tariffs on Chinese products” in response. The former president also hinted that his anticipated meeting with Chinese President Xi Jinping at the upcoming APEC summit might be canceled.
Broader market uncertainty persists amid US government shutdown
The escalating trade rhetoric comes as global markets face additional headwinds from the ongoing US government shutdown, now in its tenth day.
The budget impasse in Washington has delayed several key economic reports, further clouding the outlook for fiscal policy and federal spending. Earlier Friday, Trump’s Budget Director Russell Vought confirmed on X that “the RIFs have begun,” indicating that layoffs of federal workers are underway as the shutdown drags on.
Overall, renewed geopolitical and fiscal uncertainty has combined to weigh heavily on market sentiment, leaving AUD/USD vulnerable to further downside unless signs of de-escalation emerge between Washington and Beijing.
