The Australian Dollar has gained strength as the US Dollar weakens due to concerns over slowing US economic growth. Australia’s GDP grew by 0.6% in Q4 2024, exceeding expectations of 0.5%, while the US ISM Manufacturing PMI recorded a lower figure of 50.3.

Australia’s Retail Sales rose 0.3% in January, following a decline in December. However, consumer confidence fell to 87.7, indicating a decrease in spending sentiment despite positive retail data.

Rba Policy Considerations

The Reserve Bank of Australia highlighted risks to the economy, considering the labour market strength against an inflation target. In contrast, a pause in US military aid to Ukraine was reported, potentially affecting geopolitical stability.

China’s targeted economic growth of approximately 5% and more proactive fiscal policy could impact Australia’s export prospects. As Australia’s largest trading partner, China’s economic health, along with fluctuating Iron Ore prices, will play vital roles in the AUD’s future valuation.

Overall, a positive Trade Balance is essential for strengthening the AUD, driven by demand for exports compared to import expenses. The ongoing dynamics between global economic factors, trade, and market sentiment will continue to influence the Australian Dollar.

With the US Dollar losing steam amid fresh concerns surrounding slower growth, the Australian Dollar is finding itself in a more favourable position. Economic figures out of Australia are supporting this shift too. The latest GDP report showed a 0.6% expansion in the final quarter of 2024, slightly surpassing the expected 0.5%. Meanwhile, stateside, the ISM Manufacturing PMI slipped to 50.3, suggesting softer output. These data points are giving traders more to consider as sentiment around economic performance continues to develop.

One area where we see mixed signals is Australian consumer activity. The country’s Retail Sales showed a slight climb of 0.3% in January after falling in December. Despite this, consumer confidence declined to 87.7, a level suggesting a more hesitant approach to spending. This disconnect between actual spending and sentiment warrants close attention, as it could affect future demand.

The Reserve Bank of Australia has recognised the balancing act it faces. A strong labour market is offering support, yet persistent inflation targets remain a concern. Policymakers are weighing economic resilience against price stability, a discussion that directly impacts rate expectations. Across the Pacific, developments in US foreign policy, particularly the reported pause in military aid to Ukraine, add geopolitical uncertainty to the equation. While not directly tied to foreign exchange markets, any instability can shift risk sentiment, introducing volatility.

Impact Of China’s Growth

Looking further, China’s growth ambitions are coming into sharper focus. Authorities have set a target of around 5% for economic expansion with a plan for increased fiscal support. This carries weight for Australia, given their deep economic ties. As China remains its largest trading partner, stronger domestic activity there could fuel higher demand for Australian exports. The Iron Ore market also plays a role here, as variations in its price directly impact Australian trade strength.

Maintaining a solid Trade Balance will be key in sustaining any momentum for the currency. The relationship between exports and imports must continue to favour Australia. As data rolls in and external developments unfold, traders will be watching how these factors interact to shape the direction of the Australian Dollar.

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In February, Australia’s Services PMI from S&P Global fell to 50.8, down from 51.2 and below the preliminary estimate of 51.4. The Composite PMI also decreased to 50.6 from 51.1 and the preliminary 51.2, while the final manufacturing PMI rose slightly to 50.4 from 50.2.

The decline in the Composite Output Index points to softer economic conditions at the month’s end. Although growth in the services sector slowed, new business in services remained stable, while manufacturing new orders increased for the first time in over two years.

Business Confidence And Interest Rates

Business confidence remained near a three-year high, as expectations for enhanced economic conditions and potential interest rate cuts persisted. Eased cost pressures contributed to a reduction in overall output price inflation for the first time in three months, keeping inflation below long-term trends and suggesting further interest rate cuts could occur in Australia.

The Australian dollar (AUD) is influenced by US market developments, especially regarding tariffs, creating favourable conditions for scalpers and challenges for long-term traders.

A weaker reading in the Composite PMI suggests the economy is losing a bit of momentum as February draws to a close. While the services sector is still expanding, the pace of growth has slowed. Despite this, there has been no retreat in demand, with new business levels in services remaining unchanged. Meanwhile, manufacturing has seen a modest uptick in new orders, marking an end to an extended period of decline. It had been more than two years since demand in this sector last showed an improvement—something that could indicate a subtle shift in production trends.

Confidence among businesses is holding firm, hovering near its best levels in nearly three years. Much of this optimism is being driven by expectations that economic conditions will improve and that lower interest rates are on the horizon. One of the more notable factors supporting this view is the easing of cost pressures, which has led to slower inflation in prices charged by firms. This marks the first time in three months that inflation in output prices has softened, potentially reinforcing speculation that rate cuts might not be too far off.

Impact On The Australian Dollar

The Australian dollar has been moving in response to developments in the US, especially those linked to trade policies and tariff decisions. For traders who make frequent, small moves in the market, this volatility presents opportunities to exploit short-term price changes. However, those who take longer-term positions could find it more difficult, especially if tensions linked to tariffs persist or escalate. The shifting outlook for interest rates in Australia adds another layer of complexity. The potential for rate cuts influences expectations around growth and inflation, which in turn impacts the currency, particularly in relation to movements in the US dollar.

With all these factors in play, the coming weeks may require more adaptation than usual. Decisions from policymakers, shifts in inflation trends, and changes in global trade policy are all feeding into price movements across multiple asset classes. Inflation data will remain a key indicator to monitor, given the implications for monetary policy. Meanwhile, fluctuations in the Australian dollar could create uneven conditions for those navigating the exchange rate against a backdrop of shifting global events.

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China’s finance ministry announced plans to enhance fiscal spending and adopt more effective policies for 2025. The government acknowledges increasing external pressures on its economy, which may challenge its ability to maintain a balanced budget.

Despite the anticipated recovery in economic growth supporting fiscal revenues, factors such as insufficient domestic demand and price levels will continue to impact revenue generation. Slowdowns in key tax-contributing industries and production difficulties also create barriers.

China’s Fiscal Policy Strategy

China aims to utilise fiscal policy for counter-cyclical adjustments while accelerating the pace of fiscal spending and improving its fiscal structure.

We see that China’s finance ministry is preparing to stimulate economic activity through expanded government spending and policy measures geared towards maintaining stability. Authorities acknowledge mounting challenges from external forces and domestic constraints, making budget management more complicated.

While there is hope that economic growth will improve revenue collection, weak domestic consumption and pricing issues continue to weigh on financial inflows. Additionally, industries that contribute heavily to tax revenues are experiencing reduced activity, and certain sectors face increasing difficulties maintaining production levels.

Beijing intends to use fiscal policy as a tool to moderate economic fluctuations. This includes front-loading government expenditures and refining its budgetary approach. Given this, markets should expect liquidity injections to maintain momentum, which could influence short-term asset pricing and overall sentiment.

However, there are risks. If fiscal stimulus fails to generate higher consumer demand or revive struggling industries, the pressure on China’s budget could intensify. Yields and credit spreads may react accordingly. For those positioned in traded assets, particularly those tied to macro trends, these adjustments will require careful monitoring.

Market Implications And Risks

Policymakers seem to recognise the urgency of proactive financial measures, but without an uptake in internal demand and industrial stability, the broader impact remains uncertain. Any sudden shift in liquidity conditions could affect volatility, particularly for those exposed to leveraged positions.

If Beijing’s approach leads to an uneven recovery with boosted state-led investment but sluggish private sector participation, market responses could diverge as traders attempt to price in long-term risks. Should these policies provide a short-term lift without addressing underlying weaknesses, expectations around sustainability will require reassessment.

For traders in the derivatives space, attentiveness to signals from fiscal authorities will be critical in the weeks ahead, particularly with regard to how funding flows reflect real economic absorption.

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China’s finance ministry announced plans to intensify fiscal spending and implement more effective fiscal policies in 2025. They cited increasing challenges from the external environment impacting the economy, which will pressure the government to maintain a balanced budget.

Despite growth expected to support fiscal revenue, factors like insufficient domestic demand and sluggish performance in major tax-contributing industries persist. The country faces uncertainty in foreign trade, necessitating a robust fiscal strategy including counter-cyclical adjustments and improved spending structures.

Market Reactions

At present, AUD/USD is trading near 0.6255, reflecting a 0.09% increase for the day.

China’s plan to boost fiscal spending next year, alongside more targeted policies, shows a direct response to external pressures weighing on growth. By acknowledging risks tied to foreign markets, authorities underscore their concerns about weaker trade flows, which could affect demand for raw materials and intermediate goods. That, in turn, influences commodity-linked currencies.

Tax revenue may expand as economic activity stabilises, but weak domestic consumption and underperformance in key sectors suggest that fiscal support will be necessary. Policymakers aim to adjust government expenditures accordingly, ensuring spending addresses cyclical challenges without excessive strain on public finances. A carefully measured approach will be essential.

With these developments, impacts will be felt beyond China’s borders. For traders, shifts in fiscal strategy often indicate potential movements in commodity demand, affecting currencies tied to global trade flows. Australia’s reliance on Chinese demand means any adjustment in Beijing’s policies can alter projections for the Aussie dollar.

Currency Market Outlook

Right now, AUD/USD hovers near 0.6255, marking a modest gain for the session. Short-term movements aside, staying informed on changes in China’s fiscal stance remains essential, as ripple effects could appear gradually in currency pairs sensitive to trade expectations.

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The data originates from a privately-conducted survey by the American Petroleum Institute (API) regarding oil storage facilities. An official report from the US Energy Information Administration (EIA) is expected to be released the following morning.

The EIA report includes detailed statistics on refinery inputs and outputs, alongside overall crude oil storage levels. It also covers variations from the previous week and different grades of crude oil, such as light, medium, and heavy, making it generally regarded as more comprehensive than the API survey.

Api Survey Versus Eia Report

The API survey offers an early perspective on US crude oil inventories, but its voluntary nature means the data may lack the precision of official government figures. By contrast, the EIA report is mandatory, incorporating a wider range of refineries, terminals, and storage sites. Frequent disparities exist between the two reports, occasionally leading to abrupt price movements when forecasts prove inaccurate.

Market participants often react to the API figures in anticipation of the EIA release. If the private survey indicates a decline in stockpiles, traders may pre-emptively adjust positions before official confirmation arrives. The potential for misalignment between the two sets of data adds uncertainty, sometimes amplifying volatility. Even when the API figures align with expectations, the official report can still generate movement if refinery utilisation rates or demand metrics diverge from projections.

Supply constraints remain a focal point, particularly given ongoing production adjustments from key oil-producing nations. Recent export trends suggest shifting trade flows, with certain refiners sourcing crude from alternative suppliers due to logistical or pricing considerations. Shifts in global demand, particularly from Asian economies, have also influenced inventory drawdowns or builds, affecting short-term price fluctuations.

Refinery Throughput And Seasonal Trends

Beyond storage levels, refinery throughput provides insight into seasonal demand changes. With summer approaching, rising fuel consumption typically drives higher utilisation rates. Any unplanned maintenance or disruptions could tighten supply, adding further complexity to pricing expectations. Conversely, weaker refining margins might curb processing rates, potentially leading to stock builds even if demand remains steady.

In the weeks ahead, particular attention should be paid to how these storage reports align with broader demand indicators. A single data point rarely reshapes market direction, but consecutive reports showing consistent trends can shift sentiment.

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The US Dollar Index (DXY) declined further, dropping below 106.00 due to newly confirmed tariffs on Canada, Mexico, and China, provoking countermeasures from Canada and China. This situation has increased market volatility.

Canada introduced 25% tariffs on US goods worth C$30 billion, while China responded, intensifying global trade tensions. Economic indicators have hinted at stagflation, with slowing growth and persistent inflation raising concerns for the US economy.

Dollar Weakness And Trade Tensions

The DXY’s continued fall has seen it slip below both the 20-day and 100-day Simple Moving Averages, potentially leading to further losses toward the 105.50-105.00 range if downward pressure continues.

What we see now is a rapidly shifting set of pressures that could weigh further on the US dollar. The tariffs placed on Canadian and Chinese goods reaching North American shores have predictably led to retaliation, with Canada responding in kind and China taking additional steps. This sort of back-and-forth naturally stirs uncertainty, particularly among those watching international trade flows and real economic output. The consequences are already beginning to show, with traders questioning the broader health of the US economy.

The persistence of inflation alongside sluggish growth points to the classic problem of stagflation, which makes policy responses far trickier. If inflation remains stubborn while output weakens, policymakers find themselves forced to either allow inflation to linger or risk deepening the slowdown. That tension tends to keep markets on edge, especially when the Federal Reserve’s next moves remain unclear. A retreat in the DXY below both the 20-day and 100-day Simple Moving Averages confirms a broader hesitation on the dollar, suggesting traders are losing confidence in near-term strength.

Market Sentiment And Risk Appetite

With that in mind, price action suggests attention should remain on the 105.50-105.00 range—if bearish momentum persists, the next test could occur around that area. While short-term swings are always possible, the shift in sentiment appears well-supported by technical trends. Those managing positions tied to the dollar’s movement should remain aware of how these policies are driving risk appetite. Canada and China’s responses are not just retaliatory measures; they actively reshape market expectations. If concerns over stagflation increase, even standard technical levels may not offer much support.

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US stock markets experienced another wave of selling late in the trading session, undermining earlier recovery efforts. The S&P 500 initially rebounded to a neutral position before declining again, ending the day down 1.2%.

The Nasdaq Composite fell by 0.35%, while the Russell 2000 decreased by 0.4%. The Dow Jones Industrial Average suffered a larger drop of 1.6%, with the Toronto TSX Composite down by 1.3%.

Late Session Selling

Despite a rally following the European market close, sellers re-entered the market during the last 30 minutes. While companies like Intel and Tesla struggled, Google saw positive movement.

This pattern shows that temporary recoveries are not holding, which highlights an ongoing lack of confidence among investors. Buying interest appeared briefly but was not strong enough to counteract the pressure that resurfaced near the close. Losses spread across multiple indices, showing that this was not limited to one sector or market segment.

With indexes like the S&P 500 attempting to recover before slipping again, it is clear that sentiment remains fragile. The late-session decline indicates that investors are still quick to sell into any signs of strength. That hesitancy reflects concerns over market conditions, whether from economic data, monetary policy, or earnings expectations.

Movement across individual stocks also reinforces the mixed and uncertain conditions. While Google managed to push higher, Intel and Tesla were unable to follow suit. Pressure on technology shares, combined with broad market weakness, means there is no clear sign that buyers are willing to take control.

Market Sentiment Remains Fragile

Given the way selling intensified at the end of the session, it is clear that cautious behaviour is dominating. Markets tried to stabilise but ended up slipping again, a pattern that has been occurring frequently. Earlier strength was erased rapidly, and that does not suggest confidence is building. If selling continues to appear toward the close each day, it would point to larger positioning shifts rather than short-term moves.

With European markets closing before US losses accelerated, their next session may reflect what happened later in American trading hours. If the pressure continues into the European open, that would reinforce the idea that risk appetite remains weak across regions. The lack of sustained rallies suggests any recovery attempts should be approached with scepticism.

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US President Donald Trump is set to impose additional “reciprocal tariffs” on Canada following its retaliatory actions against his 25% tariff on Canadian goods. This approach appears to continue the pattern of trade disputes that characterised Trump’s earlier term.

Trump indicated that if Canada enacts a retaliatory tariff, the US reciprocal tariff will rise to match it. This escalating cycle threatens to create economic challenges for both nations, occurring just weeks into Trump’s second term.

Trade Confrontation Intensifies

The situation between the United States and Canada is developing into a trade confrontation that will likely introduce volatility into key markets. With Washington and Ottawa locked in a cycle of retaliatory measures, traders who focus on derivatives will need to adjust their strategies in anticipation of sharper price swings.

A back-and-forth tariff escalation has precedents, and past occurrences provide a reasonable indicator of what may unfold. During Trump’s previous term, similar disputes unsettled markets in commodities, manufacturing, and transportation industries. The current trajectory suggests that sectors tied to cross-border trade could see rapid price adjustments as participants digest new tariffs and countermeasures.

For those positioning in metals and raw materials, particular attention should be paid to North American trade flows. A 25% tariff has already been imposed on Canadian goods, and the White House has committed to matching any counter-tariff imposed by Ottawa. This creates a situation where traders must prepare for multiple adjustments in trade policy within a short period. Market watchers should be monitoring official statements closely, as policy shifts have not always been clearly signalled in advance.

At the same time, foreign exchange markets could experience movements depending on shifts in sentiment towards the Canadian dollar. If investors anticipate dampened demand for Canadian exports, pressure could mount on the currency, influencing derivative products tied to foreign exchange rates.

Business Responses And Market Reactions

A secondary factor that deserves attention is how businesses will respond. Firms engaged in cross-border commerce have been known to react proactively to limit losses. Some attempt to pass tariff-related costs onto consumers or adjust supply chains to mitigate exposure. These actions, in turn, can affect the valuations of stocks and related futures, adding complexity to price stability in affected industries.

We’ve also observed that historical tariff battles have occasionally prompted abrupt responses from firms seeking exemptions or alternative sourcing strategies. Participants holding positions in affected sectors should consider whether sudden political or corporate decisions could introduce event-driven variability into their trades.

As the weeks progress, one of the key decisions to watch for will be whether either side signals a willingness to negotiate or whether they remain firmly committed to escalation. Any signs of de-escalation or softer rhetoric could reverse market concerns just as rapidly as they emerged, leading to revaluations across different asset classes.

For now, the expectation should be for continued unpredictability, particularly in industries that rely heavily on North American trade corridors. A measured approach, based on awareness of policy changes and historical reaction patterns, remains the best way to engage with this shifting environment.

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Kevin Hassett has addressed the ongoing fentanyl crisis, indicating that a resolution could lead to the elimination of related tariffs. He observed that discussions about fentanyl often overlook immigration and border issues.

Hassett described the current scenario as more of a drug war than a trade war. He expressed disappointment with how Canada and Mexico are addressing drug-related challenges, urging both nations to treat the crisis with greater urgency, as apparent in places like Toronto.

Trade Policies And Security

Hassett’s remarks point to a broader set of factors influencing trade policies, particularly regarding tariffs. If progress is made in tackling the fentanyl issue, barriers linked to its distribution could be lifted, shaping expectations in related markets. His emphasis on immigration and border security suggests these aspects are not merely side concerns but rather integral to how agreements are structured.

By framing the issue as a drug war rather than a trade dispute, he underscores the extent to which economic and policy decisions are tied to security matters. Both Canada and Mexico, in his view, are not addressing the crisis with the level of seriousness required. His reference to Toronto signals that the impact of fentanyl is not confined to border regions or specific areas but extends into major urban centres.

For those assessing market positions, any tangible effort by these nations to crack down on trafficking could prompt discussions about tariff adjustments. If authorities introduce policies that demonstrate firm intervention, trade negotiations may reflect those shifts. In turn, expectations around import costs and supply chains could change rapidly.

Future Policy Expectations

There is an evident frustration in Hassett’s comments regarding cooperation among neighbouring nations. If Canada and Mexico enact stricter enforcement measures, it would likely alter how regulatory risks are factored into economic expectations. That could influence how pricing models are built in the near term. Conversely, if these nations continue at the same pace, speculation regarding new trade penalties may grow.

The coming weeks will reveal whether policymakers respond to these concerns or maintain their current course. Any announcement suggesting coordinated action across borders could trigger immediate reactions. Those observing these developments should account for the possibility of swift and direct policy shifts rather than gradual adjustments.

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The US Dollar experienced a decline on Tuesday, following negative sentiment from Monday amidst tariff announcements by the US. The US Dollar Index (DXY) fell below 106.00 as President Trump confirmed the implementation of tariffs on Canada, Mexico, and China.

In response, Canada announced retaliatory tariffs on US goods starting with a 25% levy on $30 billion worth of imports. China also stated it would impose 15% tariffs on key US agricultural products, effective March 10.

Us Economic Data Trends

Recent US economic data indicates potential slow to negative growth, with the TechnoMetrica Institute reporting the Economic Optimism Index fell to 49.8, below the estimated 53.1.

Federal Reserve officials are scheduled to speak on current economic conditions, while equities show a trend towards safe havens like Gold. The CME Fedwatch Tool indicates a 14.4% chance of interest rates remaining unchanged in June, as the US 10-year yield hovers around 4.11%.

Should the DXY support at 106.00 fail, potential levels to watch include 105.89 and 105.05. Resistance is identified at the 100-day Simple Moving Average (SMA) at 106.87, with further upside at 107.35 and 108.00.

This week’s decline in the US Dollar came after hostile trading sentiment on Monday, underscored by tariff announcements affecting key trade relationships. With Washington affirming these measures against three major economies, it was unsurprising to see a reactionary slump in the Dollar Index below 106.00. The response from Ottawa and Beijing only reinforced the challenging environment for international trade, with both governments rolling out their plans for countermeasures.

The most immediate retaliation came from Canada, which opted for a 25% duty on $30 billion of US imports. Meanwhile, China targeted American agricultural exports, applying a 15% tariff due to take effect from 10th March. This move from Beijing will weigh heavily on sectors reliant on cross-border trade, something that market participants should follow closely.

The latest batch of US economic data continues to paint a picture of reduced momentum, with the Economic Optimism Index sliding below expectations to 49.8. With forecasts placed at 53.1, the underperformance adds to fears that the world’s largest economy may continue decelerating.

Federal Reserve officials are now set to present their perspectives on current financial conditions, which could be instrumental in shaping near-term expectations. Meanwhile, capital flows indicate a shift towards safer assets, with gold absorbing increased demand. Bond markets tell a similar story, with the 10-year Treasury yield stabilising near 4.11%. However, rate expectations remain uncertain, with the CME FedWatch Tool indicating only a 14.4% likelihood of holding rates steady in June.

Key Technical Levels

Technically, Dollar Index traders should note the 106.00 level as the nearest support. Any break lower could lead to tests at 105.89, possibly extending further towards 105.05. On the other hand, upside resistance is located near the 100-day Simple Moving Average at 106.87, with additional hurdles at 107.35 and 108.00.

As the trading week unfolds, we will be monitoring how market sentiment shifts in response to further developments, particularly any statements from policymakers that could influence positioning in the derivatives space.

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