The Australian dollar retreated from eight-month highs on Monday, dragged lower by renewed global trade tensions after U.S. President Donald Trump issued tariff letters to the European Union and Mexico. The Aussie slipped 0.1% to $0.6566, retreating from Friday’s high of $0.6595.
Despite last week’s modest 0.3% gain, the currency now faces renewed pressure amid an emboldened U.S. dollar and intensifying tariff rhetoric from Washington. The Kiwi dollar also fell 0.4% to $0.5985, extending last week’s losses and remaining well below its recent nine-month peak of $0.6120.
The Aussie gained ground against the Kiwi, hitting a three-month high of NZ$1.0961, fueled by a reduced outlook for local interest rate cuts. The Reserve Bank of Australia (RBA) surprised investors last week by holding rates steady, signaling confidence in the domestic economy.
Iron ore prices, up nearly 4% last week, provided additional support to the Aussie, as the steelmaking commodity plays a vital role in Australia’s export strength. Prime Minister Anthony Albanese, during an official visit to China, pledged cooperation with Beijing to address the global steel glut—an issue with long-term implications for Australia’s resource exports.
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Analysts remain divided on the Australian dollar’s next move. Tony Sycamore from IG suggests that a sustained break above $0.6600 would confirm a bullish continuation. In contrast, analysts at the Commonwealth Bank of Australia warned that an escalation of trade tensions is the key downside risk.
Key economic data looms this week, with Australia’s jobs report due Thursday. Markets expect a gain of 20,000 jobs and a steady unemployment rate of 4.1%. A strong report could reinforce the RBA’s decision to hold policy, while any weakness could revive expectations of a rate cut in August, currently priced in at 85% probability.
Market swaps are now pricing in a further 75 basis points in rate cuts, with a projected terminal rate of 3.1% by early 2026.
With trade policy uncertainty and domestic data in focus, the Australian and New Zealand dollars are likely to stay volatile in the near term.
