AUD/JPY hits multi-week high, around 92.00 amid signs of easing US-China trade tensions
- AUD/JPY scales higher for the third straight day amid optimism over a US-China trade deal.
- Receding safe-haven demand undermines the JPY and lends additional support to the cross.
- The divergent BoJ-RBA policy expectations warrant caution for aggressive bullish traders.
The AUD/JPY cross attracts some follow-through buyers for the third successive day and touches over a three-week top, around the 92.00 mark during the Asian session on Friday. Moreover, the supportive fundamental backdrop suggests that the path of least resistance for spot prices remains to the upside.
Signs of easing US-China tensions continue to fuel hopes for the potential de-escalation of a trade war between the world's two largest economies and remain supportive of a positive risk tone. In fact, US President Donald Trump said on Thursday that trade talks between the US and China are underway. Adding to this, China is reportedly mulling to suspend its 125% tariff on some US imports.
The developments undermine the safe-haven Japanese Yen (JPY) and benefit antipodean currencies, including the Aussie, which, in turn, is seen acting as a tailwind for the AUD/JPY cross. However, China's Foreign Ministry spokesperson Guo Jiakun told reporters on Thursday that China and the US have not conducted consultations or negotiations on tariffs. This might cap the market optimism.
Meanwhile, data released earlier this Friday showed that consumer inflation in Tokyo accelerated in April and lifted bets for more interest rate hikes by the Bank of Japan (BoJ) in 2025. In contrast, the markets are pricing in the possibility that the Reserve Bank of Australia (RBA) will lower rates by 25 basis points (bps) in May. This might hold back bulls from placing aggressive bets around the AUD/JPY cross.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.