AUD/JPY advances to near 93.00 as risk sentiment improves due to easing US-EU tensions
- AUD/JPY rises due to improved risk sentiment after President Trump extended the 50% tariff deadline on imports from the EU.
- The AUD continues to draw support from renewed optimism surrounding a 90-day US-China trade truce.
- The JPY may limit its downside as Japan is widely expected to close a trade deal with the United States soon.
AUD/JPY extends its gains for the second successive day, trading around 93.00 during the European hours on Monday. The risk sentiment improves US President Donald Trump extended the 50% tariff deadline on the European Union (EU) from June 1 to July 9. On Friday, Trump threatened in a post on Truth Social to impose tariffs on imports from the European Union. The easing of the US-EU trade war has supported the Australian Dollar (AUD), while undermining the safe-haven Japanese Yen (JPY), and acts as a tailwind for the currency cross.
The AUD gains support against its peers amid renewed optimism surrounding a 90-day US-China trade truce and hopes for further trade deals with other countries. However, the Reserve Bank of Australia will closely monitor further developments on US-China trade negotiations, as China is a major trading partner of Australia.
The upside of the AUD/JPY cross could be restrained as Reserve Bank of Australia’s (RBA) Governor Michele Bullock supported the last week’s 25 basis points interest rate cut and mentioned that the central bank is prepared to take additional action if the economic outlook deteriorates sharply, raising the prospect of future rate cuts.
Additionally, the Japanese Yen (JPY) will regain its ground on hopes that Japan will strike a trade deal with the United States. On Sunday, Japan’s chief trade negotiator Ryosei Akazawa is expected to advance tariff negotiations with the US during a June meeting between President Trump and Japan’s Prime Minister Shigeru Ishiba, per Bloomberg.
The JPY gained support from growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates after the release of hotter-than-expected consumer inflation figures from Japan on Friday.
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.