The Australian dollar strengthened on Tuesday after former U.S. President Donald Trump suggested that a trade deal with China remains possible, boosting investor sentiment. Markets responded positively to the comments, with the Aussie rising against the U.S. dollar as traders speculated on improved economic prospects for trade-dependent economies.
The renewed optimism over U.S.-China trade relations comes after a prolonged period of uncertainty, which has weighed on global markets. Australia, heavily reliant on exports to China, stands to benefit from any signs of easing tensions. The prospect of a more cooperative trade environment lifted demand for the Aussie, which is often seen as a barometer of risk appetite.
Despite the gains, investors remain cautious about the broader economic outlook. Previous trade negotiations have proven volatile, with markets reacting sharply to shifting rhetoric from both sides. Traders are watching for concrete developments that could confirm whether a deal is truly on the table or if this is another short-lived market reaction.
AUD/USD 1-D Chart as of February 20, 2025 (Source: TradingView)
In addition to trade headlines, the Reserve Bank of Australia’s policy stance remains a key driver for the currency. While inflation pressures have eased, the RBA has maintained a cautious approach, keeping traders on edge about future rate decisions. Any signals of policy shifts could further influence the Aussie’s trajectory.
The U.S. dollar remained steady, limiting further upside for the Australian currency. Market participants are waiting for upcoming U.S. economic data and Federal Reserve commentary to gauge whether the greenback will strengthen or retreat in the coming weeks. Any dovish signals from the Fed could provide additional support for the Aussie.
For now, the Australian dollar’s outlook hinges on further trade developments and central bank signals. If trade optimism continues to build, the currency could extend its gains, but renewed tensions or disappointing economic data may reverse its momentum.
