Australian Dollar Weakens as US Dollar Recovers Amid Falling Yields

Australian Dollar Declines as US Dollar Reverses Losses with Declining Yields

The Australian Dollar (AUD) continued to trade lower against the US Dollar (USD) on Tuesday, marking its second consecutive day of weakness. The AUD/USD pair is holding just below the key psychological level of 0.6500, after retreating from a six-month high of 0.6537 reached on Monday.

The decline comes as the US Dollar regains some strength, even as US Treasury yields continue to slide. The rebound in the Greenback appears tied to cautious sentiment around the US debt outlook, with investors still digesting fiscal uncertainty and potential policy implications.

Meanwhile, positive economic data out of China offered some underlying support for the Aussie. China’s industrial profits rose by 3% year-over-year in April 2025, accelerating from a 2.6% increase in March. For the January–April period, profits were up 1.4% YoY, compared to 0.8% growth in Q1. According to Chinese state media, the gains were driven by sectors such as high-tech manufacturing and equipment production—sectors that are seen as indicators of industrial strength.

Given Australia's deep trade ties with China, stronger Chinese economic performance typically translates into a tailwind for the Australian Dollar. However, this was not enough to offset the USD's current rebound.

Traders are also keeping a close eye on geopolitical developments, particularly between the US and the European Union. US President Donald Trump has postponed a proposed 50% tariff on EU imports from June 1 to July 9 following a call with EU Commission President Ursula von der Leyen. This easing of trade tensions could boost global risk sentiment, indirectly supporting the Aussie in the sessions ahead.

In the near term, market attention will focus on bond yields, risk sentiment, and further developments in China’s economic indicators—all of which are likely to influence AUD/USD direction.