Market Briefing: Holding on
Push-pull. Modest market moves overnight. US equities ticked up, bond yields dipped. Copper rose. USD a bit softer. AUD edged back over ~$0.63
AU Budget. Small surprise tax cut starts in mid-2026. RBA outlook unchanged as overall fiscal impulse little different. Federal Election due by 17 May.
Data flow. Monthly AU CPI indicator released today. Global markets still focused on US reciprocal tariffs which will be announced on 2 April.
Global Trends
Market moves were rather modest overnight. A late-session rally in a few of the US big tech stocks saw the S&P500 eke out a small gain (+0.2%) after the previous days increase. There were also small falls in US bond yields with rates ~2bps lower across the curve, while in FX the USD index lost a bit of ground. EUR consolidated under ~$1.08, the lower end of its 3-week range, GBP nudged up (now ~$1.2944), and USD/JPY dipped back below ~150. The NZD ticked a fraction higher (now ~$0.5732), USD/SGD is approaching its 200-day moving average (~1.3340), and the AUD edged up slightly (now ~$0.6305).
Geopolitical news pushed and pulled on risk sentiment. On the one hand, following talks the US indicated Russia and Ukraine had agreed to a ceasefire in the Black Sea that ensures navigation and prevents the use of commercial shipping for military purposes. The truce, which also includes a 30-day moratorium on strikes against energy infrastructure, is due to come into force once sanctions are lifted on some Russian banks and agricultural companies. On the other hand, uncertainty regarding the US’ trade policy remains. Following yesterday’s reports that the US’ 2 April “Liberation Day” tariffs might be narrower in scope than feared, media stories overnight suggested things might not be straight forward with a two-step process being eyed. Reportedly, the US is looking to deploy rarely used powers to impose duties quickly but in a more legally robust framework. Indicative of the chopping and changing in the US’ policies, and what the tariffs could do to prices, US consumer sentiment plunged to its lowest level since early-2021. The uncertainty is sand in the gears of the US economy. Various indicators are signaling a stepdown in momentum.
The gyrations in markets over recent weeks shows how fragile sentiment is. The outlook is uncertain, and we think there could be more bursts of volatility over the near-term, particularly around the announcement of US ‘reciprocal’ tariffs (due 2 April). Renewed bouts of turbulence may generate intermittent USD strength. But, over the longer-term we remain of the view that the USD should trend lower as growth differentials between the US and other major nations narrow, and as a loosening in US labour market conditions brings interest rate cuts by the US Fed back on the agenda. Markets are factoring in the next Fed reduction by July with 3 cuts discounted by March 2026.
Global event radar: China PMI (31st Mar), RBA Meeting (1st Apr), EZ CPI (1st Apr), US Reciprocal Tariffs (2nd Apr), US Jobs (4th Apr)
Trans-Tasman Zone
The AUD has perked up over the past 24hrs with more positive sentiment, as illustrated by the uptick in global equities and firmer base metal prices (copper rose +2.9%), and a softer USD helpful. At ~$0.6305 the AUD is tracking close to its ~1-month average. The AUD also edged up on most of the major crosses with gains of ~0.1-0.4% recorded versus the EUR, GBP, NZD, CAD, and CNH. By contrast, AUD/JPY drifted modestly lower (now ~94.50).
In Australia the pre-election Federal Budget was handed down last night. The overall FY25 fiscal impulse looks no different from what was already assumed; hence we don’t expect it to influence the RBA’s policy thinking. The Budget was a platform for the upcoming election (which is required to take place by 17 May) focused on households with the already announced healthcare initiatives and extension of energy bill rebates complemented by a surprise new small tax cut for all taxpayers. The first marginal tax rate will fall from 16% to 14% over two years from 1 July 2026 at a cost of ~A$17.1bn over five years. Structural pressures on the budget remain with the swing back into deficit in FY25 projected to continue into the foreseeable future.
Headwinds in the global economy from the US’ policy push and resultant uncertainty will have indirect impacts on Australia. That said, we agree with Treasury’s assessment that the local economy is turning the corner on the back of a solid labour market and rising real wages. As outlined before, Australia’s trade relationship with the US is minimal (less than ~4% of exports are sent to the US), and Australia is one of the few nations the US runs a trade surplus with (i.e. US exports more to Australia than it imports from Australia). Moreover, we believe tariff induced export pain in China is likely to be offset via measures aimed at boosting commodity-intensive infrastructure investment. This is where Australia’s key exports are plugged into. These factors, coupled with the AUD’s low starting point (it has only closed below $0.63 ~3% of the time since 2015) and valuation support (it is tracking ~4 cents under our ‘fair value’ models) suggest that beyond the potential short-term volatility there are more upside than downside risks for the AUD over the medium-term.
Today, the monthly Australian CPI indicator for February is due (11:30am AEDT). More information about services prices will be included in this release. On net, we think headline inflation should hold steady at 2.5%pa. The full Q1 CPI report, due 26 April, will be the key release for the RBA when it comes to gauging the inflation pulse. In our opinion, the RBA should hold firm in early April with the 20 May gathering the next ‘live’ meeting for another rate cut. The RBA's easing cycle looks set be more gradual/limited than its peers.
AUD & NZD event radar: AU CPI (Today), China PMI (31st Mar), RBA Meeting (1st Apr), EZ CPI (1st Apr), US Reciprocal Tariffs (2nd Apr), US Jobs (4th Apr)
AUD levels to watch (support / resistance): 0.6200, 0.6260 / 0.6340, 0.6380
NZD levels to watch (support / resistance): 0.5650, 0.5690 / 0.5760, 0.5800
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
WEDNESDAY (26th March) AUD CPI – Monthly (Feb) (11:30am)
GBP CPI Inflation (Feb) (6pm)
EUR ECB’s Villeroy Speaks (9pm)
USD Durable Goods Orders (Feb P) (11:30pm)
THURSDAY (27th March)
USD Fed’s Kashkari Speaks (1am)
USD Fed’s Musalem Speaks (4:10am)
EUR ECB’s Cipollone Speaks (5am)
GBP BoE’s Dhingra Speaks (7:30pm)
USD Initial Jobless Claims (11:30pm)
FRIDAY (28th March)
EUR ECB’s Guindos & Villeroy Speak (12am)
EUR ECB’s Wunsch Speaks (3:15am)
EUR ECB’s Escriva Speaks (3:45am)
EUR ECB’s Schnabel Speaks (5:30am)
USD Fed’s Barkin Speaks (7:30am)
NZD Consumer Confidence (Mar) (8am)
NZD Filled Jobs (Feb) (8:45am)
JPY Tokyo CPI Inflation (Mar) (10:30am)
USD PCE Deflator (Feb) (11:30pm)
CAD GDP – Monthly (Jan) (11:30pm)
GBP Retail Sales (Feb) (6pm)
EUR France CPI Inflation (Mar P) (6:45pm)
EUR Spain CPI Inflation (Mar P) (7pm)
SATURDAY (29th March)
USD Fed’s Barr Speaks (3:15am)
USD Fed’s Bostic Speaks (6:30am)
*Note, all times/dates provided are AEDT
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