The Australian dollar strengthened on Thursday, gaining momentum as investor sentiment improved following Donald Trump’s latest shift in trade policy. Markets welcomed the decision, seeing it as a potential easing of trade tensions, which lifted risk-sensitive currencies like the Aussie dollar.
Traders had been wary of Trump’s previously aggressive stance on tariffs, which had weighed on global trade confidence. However, signs that his administration might adopt a more measured approach have reassured investors, driving capital back into risk assets and lifting demand for the Australian dollar.
Adding to the bullish momentum, commodity prices, particularly those tied to Australia’s exports, saw a modest recovery. A more stable trade environment could support demand for key Australian exports, including iron ore and coal, providing further backing for the currency.
AUD/USD 1-D Chart as of March 06, 2025 (Source: TradingView)
Meanwhile, the U.S. dollar remained under pressure, with markets closely watching upcoming economic data for signals on the Federal Reserve’s next policy move. Softer U.S. inflation data or signs of economic slowing could strengthen the case for rate cuts, putting further downward pressure on the greenback and helping the Aussie extend its gains.
Despite the positive sentiment, some analysts warn that volatility could return if trade negotiations take another unpredictable turn. The Australian dollar’s rally may be tested if geopolitical tensions resurface or if global economic growth slows, prompting a renewed flight to safe-haven assets like the U.S. dollar.
For now, the Aussie remains in an upward trend, benefiting from a shift in sentiment and expectations of a more balanced trade environment. Investors will be closely watching economic data and policy developments, looking for further clarity on whether the rally has room to extend or if renewed uncertainty could spark another reversal.
