The AUD/USD pair trades on a flat note near 0.6275 during the early Asian session on Wednesday. The markets turn cautious ahead of US President Donald Trump's announcement of reciprocal tariffs. Also, the US March ADP Employment Change will be published.
Trump is set to implement tariffs on US trading partners on Wednesday, potentially adding more tariffs on Chinese goods. Trump has already placed a total of 20% tariffs on all Chinese imports since taking office in January, blaming Beijing for failing to do enough to curb the flow of chemicals used to make the deadly drug fentanyl into the US. The potential trade war between the US and China might exert some selling pressure on the Aussie, as China is a major trading partner to Australia.
The Reserve Bank of Australia (RBA) kept the Official Cash Rate (OCR) on hold at 4.10% following the conclusion of its April policy meeting on Tuesday. The RBA's monetary policy statement showed that the board is concerned and cautious about whether inflation will continue to moderate.
RBA Governor Michele Bullock said during the press conference that policymakers have to be careful not to get ahead of themselves on policy. Bullock added that the board did not discuss a rate cut and did not make up its mind on a May move.
Meanwhile, the encouraging Chinese economic data provides some support to the China-proxy Aussie. China's Caixin Manufacturing PMI improved to 51.2 in March from 50.8 in February. This reading was better than the expectation of 51.1.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
Source: Fxstreet
