The Australian dollar slipped below $0.658 on Friday, snapping a three-day upward trend. This change in trajectory was triggered by rising caution in the market following new tariff threats from U.S. President Donald Trump. On Thursday, Trump declared a 35% tariff on Canadian imports effective August 1, in response to Ottawa's retaliatory measures. He also indicated plans to enforce broad tariffs ranging from 15% to 20% on most other trading partners. This move could have considerable implications for Australia, which significantly relies on free trade for its commodity exports and is currently dealing with an existing 10% levy.
On the monetary policy front, the Australian dollar had found support due to the Reserve Bank of Australia's unexpected decision to maintain rates at 3.85%. Nonetheless, market speculation about a rate cut in August is gaining strength, with an 89% probability now factored in. This speculation is largely dependent on the upcoming Q2 inflation data, expected on July 30. A rise in core inflation between 0.6% and 0.7% could pave the way for a rate cut, whereas a stronger inflation figure might delay any easing measures. Despite the recent dip, the Australian dollar has increased by 0.5% this week, marking its third consecutive weekly gain.
