The Australian dollar dived to five-year lows on Monday, slammed by fears that a tit-for-tat global trade war would send the global economy into a recession, which had some traders bet on outsized rate cuts Down Under.

China - Australia's largest trading partner – was the worst hit by Trump’s latest tariffs. The Antipodean country's three-year government bond yields tumbled to the lowest since May 2023.

Markets see a 20% chance that the RBA could even deliver a big 50-bp rate cut in May, having just held steady last week. The central bank is waiting for more data to be sure inflation is heading in the right direction.

It did note that vulnerabilities could build if an easing in financial conditions encourages households to take on excessive debt. Home prices rose to record highs in March following the February rate cut.

Even before the tariff shock, government said mining and energy export earnings could fall 6% in the financial year through June and “further modest falls in earnings are likely over the five-year outlook.”

Iron ore will remain the mainstay of Australia's commodity exports, but the prices are increasingly vulnerable. The exports to China from Australia's Port Hedland fell by 14.8% in February.

The Aussie dollar broke below 50 SMA decisively amid signs of oversold condition. The next major level that may provide some support is seen at the low around 0.5980 hit in March 2020.

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