New York, April 4, 2025 – The U.S. dollar trimmed its earlier gains while the Australian dollar deepened its decline in volatile trading on Friday morning, as markets digested China’s retaliatory tariffs on U.S. goods, announced hours ago. Beijing’s move, set to take effect April 10, escalates a trade war sparked by President Donald Trump’s April 2 executive order imposing a 10% baseline tariff on all U.S. imports and a 54% duty on Chinese goods, amplifying economic uncertainty worldwide.
A Tit-for-Tat Escalation
China’s Finance Ministry unveiled additional tariffs averaging 34% on U.S. imports—targeting oil, coal, gas, cars, and farm products like soybeans and pork—in response to Trump’s “reciprocal” duties, which layered a 34% hike atop an existing 20% levy from his first term. The announcement, made at 2:01 a.m. PDT, followed Trump’s refusal of a call with President Xi Jinping, with Press Secretary Karoline Leavitt stating he’d engage “in a few days” but offering no firm concessions. “There are no winners in tariff wars,” Foreign Ministry spokesperson Lin Jian reiterated at a Friday briefing, signaling Beijing’s resolve to “fight to the end.”
The U.S. dollar index (DXY), which tracks the greenback against six major currencies, slipped 0.35% to 108.65 by 4:00 a.m. PDT, paring a 0.8% rise from Thursday’s close after hitting a two-year peak of 110.17 last week. “China’s retaliation has flipped the script—markets see this as the start of a prolonged slugfest, not a quick win for the dollar,” said Thierry Wizman, Macquarie Group’s global FX strategist, in a note to Reuters.
Aussie Takes a Beating
The Australian dollar (AUD), often a proxy for China’s economic health due to Australia’s commodity export reliance, cratered 2.2% to $0.6198—the steepest daily drop since March 2023—extending a weeks-long slide from $0.69 in late 2024. China, absorbing $118 billion in Australian iron ore annually, is a linchpin for the AUD, and fears of a tariff-induced slowdown in demand pummeled the currency. Posts on X captured the mood: “AUD and NZD are getting smoked—China’s tariffs are a gut punch to commodity currencies,” one user wrote.
The New Zealand dollar (NZD) followed suit, plunging 1.8% to $0.5688, as both nations brace for ripple effects from China’s export curbs on rare earths—vital for tech and green energy—announced alongside the tariffs. “Australia’s economy is wobbly if China wobbles,” independent economist Nicki Hutley told The Guardian, a sentiment echoed by Commonwealth Bank forecasts of the AUD dipping below $0.60 in coming months.
Market Jitters and Mixed Signals
The dollar’s retreat came despite initial strength from Trump’s tariff rhetoric, which typically boosts the greenback by raising U.S. import costs and inflation expectations. However, China’s swift counterpunch and the EU’s $28 billion retaliatory package shifted sentiment. The euro held near Thursday’s 1.8% surge, trading at $1.1041 (down 0.1%), while the yen—a safe-haven favorite—gained 0.35% to 145.51 against the dollar after a 2.2% tumble Thursday.
Analysts see a tug-of-war ahead. “The dollar’s safe-haven status isn’t dead, but tariff chaos is muddying the waters,” HSBC’s Paul Mackel told Reuters, suggesting the euro’s dip reflects a correction, not a trend. Gold hit $3,167.50 overnight—a record—before easing to $3,150, while 10-year U.S. Treasury yields dipped to 4.22%, signaling a flight to bonds amid equity carnage (S&P 500 futures down 2% pre-market).
What’s Next?
With Canada and Mexico securing a 30-day tariff reprieve on April 3, focus shifts to China’s next moves and Trump’s hinted aluminum and copper duties, which could ensnare Australia further. Markets await U.S. consumer price data Wednesday and China’s Q1 GDP figures Friday, both potential catalysts in this tariff-fueled storm. For now, the dollar’s rise is on pause, and the Aussie’s fall underscores a global economy teetering on the edge of Trump’s trade gamble.
