The Australian dollar saw a significant surge today, driven by several key factors:

Weak U.S. Economic Data: The latest U.S. retail sales report showed a sharp decline, marking the biggest drop in nearly two years. This led to a decrease in the U.S. 10-year Treasury yield to 4.48%, narrowing the gap with the Australian 10-year yield (4.45%). As a result, investor confidence in the USD weakened, prompting a shift towards the AUD.

Adjustment in RBA Rate Cut Expectations: While the Reserve Bank of Australia (RBA) recently implemented a rate cut, Governor Michele Bullock stated that it is too early to declare victory over inflation. This cautious stance has strengthened market confidence in the Australian dollar.

Strong Australian Economic Data: Recent reports showed that Australia added 44,000 jobs last month, far exceeding the expected 19,400. Full-time employment also increased by 54,100, highlighting the strength of the labor market, further supporting the AUD.

Optimism Over U.S.-China Trade Relations: Former U.S. President Donald Trump recently suggested that a new trade deal between the U.S. and China could be possible. This has fueled hopes for an improved global trade environment, benefiting trade-driven economies like Australia and boosting the AUD.

In summary, shifts in global economic data, adjusted central bank policy expectations, and positive trade outlooks have collectively driven today’s strong rally in the Australian dollar.

The Australian dollar stabilized above $0.62 on Tuesday, recovering from multi-year lows reached in the previous session, following U.S. President Donald Trump’s decision to postpone tariffs on Mexico and Canada for a month after successful negotiations with their leaders.

Despite this, the planned U.S. tariffs on China are still set to take effect later today.

Trump is scheduled to meet with Chinese President Xi Jinping this week, as both sides aim to reach a deal and avoid a broader trade war.

In Australia, investors are awaiting December trade figures, due on Thursday, to assess the strength of the country’s export-driven economy.

Market sentiment is leaning toward expectations that the Reserve Bank of Australia may begin cutting interest rates this month, amid easing inflation and signs of slowing economic activity.

(From Trading Economics)