On May 26, US-China trade headlines and policy updates from Beijing will influence AUD/USD price action. On Sunday, May 25, CN Wire reported that Chinese state media emphasized the unresolved nature of the US-China trade conflict, warning that talks would be "protracted and arduous."
The commentary cited US delay tactics and the risk of renewed escalation if US political and economic pressures ease. The report concluded that China must prepare for prolonged negotiations and a sustained confrontation.
A prolonged trade war may impact Aussie trade terms, given China accounts for one-third of Australian exports. With a trade-to-GDP ratio above 50%, weaker demand from China could pressure the RBA into adopting a more dovish stance.
RBA Governor Michele Bullock recently warned that a worsening trade war could push Australia into recession. She noted:
"Australia's economy could easily be compromised if a trade war between the US and China escalates... The market path is reflecting a possibility of a really bad outcome, pointing to a lower RBA cash rate."
Rising recession fears and a more dovish RBA rate path may weigh on AUD/USD. However, any stimulus out of Beijing could cushion the blow.
Later today, US monetary policy will also affect AUD/USD. Hawkish Fed rhetoric may widen the US-Aussie interest rate differential, potentially pulling AUD/USD toward the 200-day EMA. Meanwhile, dovish cues favoring a Q3 Fed rate cut would narrow the rate differential, sending the pair toward $0.65008.
Traders should also monitor US fiscal risks and global trade rhetoric. On May 23, AUD/USD rose 1.29% to $0.64914 as markets digested Trump's tariff threat on EU imports and growing concerns over US debt levels.