The AUD/USD pair trades modestly higher near the 0.6700 level during the European session on Monday, gaining around 0.25% on the day. The Australian Dollar is benefiting primarily from a softer US Dollar, as market sentiment turns cautious amid rising trade tensions between the United States and the European Union during a US market holiday.

The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, slips around 0.2% to hover near 99.20. The USD remains under pressure after US President Donald Trump announced new tariff threats over the weekend, proposing a 10% levy on imports from several European Union countries and the United Kingdom. He also warned that tariffs could be increased to as much as 25% if European nations refuse to cooperate with Washington’s push to purchase Greenland, a move the US administration claims is linked to national security and global stability concerns.

These remarks have sparked a strong response from Europe. Greenland’s Prime Minister Jens-Frederik Nielsen firmly rejected the US stance, stating that tariff threats would not influence Greenland’s position and that external pressure would not be tolerated, according to Reuters. Germany also reacted sharply, with officials labeling the tariff threats “unacceptable” and signaling readiness to retaliate with countermeasures if new tariffs are imposed. The escalation in rhetoric has revived fears of a broader trade dispute, weighing on the US Dollar and supporting risk-sensitive currencies such as the Australian Dollar.

On the domestic front, the Australian Dollar remains relatively stable as investors adopt a wait-and-see approach ahead of key labor market data due later this week. Australia’s employment report for December, scheduled for release on Thursday, is expected to show a rebound in job creation, with forecasts pointing to an increase of around 30,000 jobs following a sharp loss of 21,300 positions in November. At the same time, the unemployment rate is projected to edge higher to 4.4% from 4.3%, suggesting some softening in labor market conditions.

The upcoming employment data will be closely monitored for clues about the Reserve Bank of Australia’s policy outlook. A weaker-than-expected labor market could reinforce expectations of a more accommodative stance, potentially limiting further upside in the Aussie. For now, AUD/USD remains supported as long as trade-related uncertainty continues to undermine the US Dollar.

Trade Idea:
Buy AUD/USD on dips near 0.6660, targeting 0.6760, with a stop below 0.6615, as US Dollar weakness and trade tensions favor short-term upside.