Australian dollar dips on soft retail sales, US court reinstates tariffs

[Ben Graham]

The Australian dollar is in negative territory on Friday. In the European session, AUD/USD is trading at 0.6415, down 0.42% on the day.

Australian retail sales show unexpected decline

Australia's retail sales contracted in April by 0.1% m/m, missing the market estimate of 0.3%, which was also the March reading. This was the first decline since December, weighed by declines in clothing and department store spending. Annually, retail sales rose 3.8%, compared to 4.3% in March.

The weak retail sales report points to a nervous Austrlian consumer and will support the case for further rate cuts. The Reserve Bank of Australia lowered rates by a quarter-point to 3.85% last week, only the second rate cut this year. The markets expect the Reserve Bank to be more aggressive and have priced in a cut of at least 75 basis points before the end of the year, which would lower the cash rate to around 3%.

Consumer spending and confidence remain weak and further rate cuts would boost consumption. However, US President Trump's zig-zag tariff policy has created huge uncertainty, making it difficult for the RBA to chart a rate path.

The US has imposed 10% tariffs on Australian products but even more concerning is the US-China trade war. The two countries agreed earlier this month to dramatically lower the tariff rates on each other but the agreement is only for 90 days. China is Australia's largest trading partner and a downturn in China's economy would damage Australia's export-reliant economy.

Federal court reinstates Trump's tariffs

The tariffs are winding their way through the US courts. A trade court panel ruled this week that most of Trump's tariffs were illegal but on Thursday, an appeals court granted the Trump administration a temporary pause, which keeps the tariffs in effect. The legal fight over the tariffs could go all the way to the Supreme Court and is causing even more uncertainty in the financial markets.

AUD/USD Technical

• AUD/USD has pushed below support at 0.6434 and is testing 0.6421. Next, there is support at 0.6402
• There is resistance at 0.6453 and 0.6466

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AUDUSD 4-Hour Chart, May 30, 2025

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