Image Source: Unsplash

• AUD/USD rebounds to around 0.6010 in Tuesday’s Asian session.
• Investors raise their bets the Fed will cut interest rates aggressively as Trump's tariffs raise US recession fears.
• The RBA is anticipated to cut interest rates at their next meeting. 

The AUD/USD pair recovers some lost ground to near 0.6015 during the early Asian session on Tuesday. The US Dollar (USD) edges higher against the Aussie amid concerns over a recession in the United States following US President Donald Trump's sweeping tariffs on trading partners.

Analysts believe that the uncertainties surrounding the new Trump tariff policy will likely increase inflation and make a US recession more likely. Traders are stepping up bets the US Federal Reserve (Fed) will cut interest rates aggressively this year. According to the CME FedWatch tool, the markets have priced in a nearly 65% chance of a Fed cut in May, and futures now point to about 100 basis points  (bps) worth of rate reductions by December. 

On the Aussie front, the rising speculation that the Reserve Bank of Australia (RBA) could deliver faster and deeper rate cuts than previously expected could undermine the Australian Dollar (AUD) in the near term. The RBA will meet in May, and a 25 bps rate cut is likely, with a jumbo 50 bps reduction a slight possibility.

Meanwhile, China announced last Friday that it will impose 34% counter-tariffs on the US, taking effect Thursday, as part of a retaliatory reaction to Trump's tariffs. The escalating trade war between the two largest economies in the world would damage the Australian economy and weigh on the AUD, as China is its biggest trading partner.

China announced last Friday that it will impose a 34% tax on all US imports, taking effect Thursday, as part of a retaliatory reaction to Trump's tariffs. This marks Beijing's toughest retaliation to the American leader's trade war. The concerns over trade tensions between the world's two biggest economies exert some selling pressure on the China proxy, as China is a major trading partner to Australia.

More By This Author: