- AUD/USD weakens to around 0.6245 in Monday’s early Asian session.
- Trump announced a 25% tariff on steel, aluminum imports.
- US Nonfarm Payrolls rose by 143,000 in January vs. 170,000 expected.
The AUD/USD pair attracts some sellers to near 0.6245 during the early Asian session on Monday. The US Dollar (USD) edges higher amid the fear of a trade war threat.
Trump said on Friday he plans to announce reciprocal tariffs on many countries by Monday or Tuesday, without specifying which countries. Additionally, Trump stated on Sunday that he plans to impose 25% tariffs on all steel and aluminum imports into the US on Monday, and Australia will not be exempt. The new tariffs might hit Australian exports and exert some selling pressure on the Australian dollar (AUD), though it is not yet clear when the new taxes will be imposed.
The US Federal Reserve (Fed) is now expected to keep interest rates on hold this year after the January jobs data showed that U.S. job growth slowed in January but that the Unemployment Rate ticked lower. This, in turn, supports the Greenback and acts as a headwind for AUD/USD.
Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that Nonfarm Payrolls (NFP) in the US rose by 143,000 in January, compared to the 307,000 increase (revised from 256,000) seen in December. This figure came in below the market expectation of 170,000. Meanwhile, the Unemployment Rate edged lower to 4% in January from 4.1% in December. Finally, annual wage inflation, as measured by the change in the Average Hourly Earnings, climbed 4.1% YoY in January, surpassing the market expectation of 3.8%.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.