• AUD/USD retreats from its earlier rebound and trades around 0.7080 at the start of the week.
• Uncertainty over US trade policy revives volatility in the FX market.
• Expectations of Federal Reserve rate cuts limit the US Dollar’s upside potential.

AUD/USD trades around 0.7080 on Monday at the time of writing, down 0.05% on the day, after briefly rising above the 0.7100 level during the Asian session. The pair reverses its short-term trajectory as the Australian Dollar (AUD) weakens against most of its major peers, amid renewed trade uncertainty and investor repositioning.

The US Dollar (USD) shows broader signs of fatigue, with the US Dollar Index (DXY) hovering near 97.60, slightly lower on the day. The Greenback remains pressured by doubts surrounding the consistency of US trade policy, following the Supreme Court’s decision to curb the scope of certain tariff measures. The ruling has reignited questions about regulatory visibility and the credibility of economic policy direction in Washington.

In response, US President Donald Trump announced the imposition of a 15% global tariff on imports to maintain pressure on trading partners. This move sustains a risk-averse environment and fuels defensive flows, providing partial support to the US Dollar while increasing volatility in cyclical currencies such as the Aussie.

Meanwhile, expectations of monetary easing continue to weigh on the Greenback. Markets still price in the possibility of at least two additional 25 basis point rate cuts from the Federal Reserve (Fed) by year-end, against a backdrop of moderating growth and softer forward-looking indicators. Recent data, including weaker-than-expected Gross Domestic Product (GDP) figures and softer Purchasing Managers Index (PMI) readings, reinforce this cautious outlook.

On the Australian side, a still-hawkish stance from the Reserve Bank of Australia (RBA) could help limit the Aussie’s losses. Stronger-than-expected economic releases support the view that the central bank maintains a tightening bias in order to contain persistent inflationary pressures. This relative policy divergence between the RBA and the Fed helps contain downside pressure on AUD/USD, although the pair remains highly sensitive to shifts in global sentiment and trade developments.