Market Briefing: Policy uncertainty
Have a look at the latest edition of our Event Radar & Views In A Nutshell pack
Mixed markets. US equities fell. ECB cut rates but gave off 'hawkish' vibes. EUR holds onto recent gains. AUD up near its 4-month average.
Push/pull. US tariff news still evolving. Pres. Trump announced temporary exemptions on some imports from Mexico & Canada. The art of the deal?
US jobs. Monthly US jobs report due tonight. US Fed Chair Powell also speaks on the outlook. These events could spark more USD volatility.
Global Trends
Markets continue to be whipped around by geopolitical and economic uncertainty. In the US, tariff news is still evolving. US President Trump announced that goods from Mexico and Canada covered under the North American trade agreement (i.e. USMCA) will be exempt from the new 25% tariff. Although this exemption will only last until 2 April. This is the date when the US is expected to unveil “reciprocal” duties based on tariffs and non-tariff barriers on its trading partners. The chopping and changing about when tariffs will come into place and what products are covered further illustrates that things aren’t set in stone.
In Europe, the ECB announced another 25bp cut, its 6th since June which lowered the deposit rate to 2.5%. The move was expected however changes to the ECB’s assessment and guidance suggest the easing cycle may be nearing its end. According to the ECB policy is “becoming meaningfully less restrictive” while President Lagarde highlighted that disinflation is on track and the data will guide future decisions. Markets are pricing in another ECB rate reduction by June with a final step factored in by year-end. A part of the upward adjustment in longer-term European interest rate expectations is due to the shifting fiscal landscape. The outlook for greater spending on defence and infrastructure across the region is a potential driver of economic activity, but one that may also generate inflation.
In terms of the numbers, US policy uncertainty and growth risks weighed on equities. The S&P500 fell 1.8% with the tech-focused NASDAQ underperforming (-2.6%). The S&P500 is nearly 7% from its record highs and below where it was at the time of the US election. US front-end bond yields eased (2yr -4bps) while the sell-off in European bonds continued, albeit by far less than yesterday. The German 10yr yield rose another 4bps pushing it up to levels last traded in Q4 2023 (now ~2.83%). In FX, the USD drifted a bit lower with EUR hovering under ~$1.08 (a multi-month high). USD/JPY extended its pull-back (now ~147.83) and CAD strengthened on the back of the tariff exemption. NZD nudged up (now ~$0.5739) and AUD consolidated near its 4-month average (now ~$0.6335).
The state of the US economy will be in focus tonight with the monthly jobs report (12:30am AEDT) and a speech by Fed Chair Powell on the outlook (4:30am AEDT) on the radar. Monthly employment growth could pick up as temporary drags from last month like bad weather unwind. That said, as our chart shows, the US economic data has tended to undershoot consensus expectations recently. An extension of this "negative surprise" trend and/or comments by Chair Powell that the door to further policy adjustments remains open due to growth challenges could see the USD lose more ground.
Global event radar: US Jobs Report (Tonight), US Fed Chair Powell Speaks (Sat), US CPI (12th Mar), BoC Meeting (13th Mar), China Data (17th Mar), US Retail Sales (17th Mar), BoJ Meeting (19th Mar), US Fed Meeting (20th Mar), BoE Meeting (20th Mar)
Trans-Tasman Zone
The AUD has oscillated in a tight ~0.6% range centered on ~$0.6340 over the past 24hrs as geopolitical and policy uncertainty continue to whipsaw markets (see above). On the back of its recent rebound the AUD is tracking just north of its ~4-month average and is almost ~2.3% above where it started 2025. The NZD (now ~$0.5739) is also near its 4-month average with the weaker USD the underlying driver behind the recovery. The AUD has been a more mixed on the crosses. While it ticked up a fraction against GBP and CNH (+0.1%) and consolidated versus the EUR around the bottom end of its multi-year range, it underperformed the NZD (-0.2%), CAD (-0.3%), and JPY (-0.7%) yesterday.
As mentioned above, the health of the US economy will be a market focus today with the monthly US jobs data (12:30am AEDT) and speeches by a few Fed policymakers, including Chair Powell (4:30am AEDT), on the run sheet. In our opinion, while monthly US employment growth is likely to have picked up as some of the temporary negative factors from January fade, the broader data set could show that US labour market conditions are loosening. If realised, we think markets may look to factor in more chance of another Fed rate cut, particularly as the US economy looks to be losing steam. This in turn could exert a little more downward pressure on the USD (support the AUD).
Taking a step back from the likely short-term US data-induced volatility we remain of the view that from a medium-term perspective there are uneven risks for the AUD around current levels (i.e. there is more upside than sustained downside potential). In addition to diverging monetary policy trends between the “cautious” RBA and many other central banks the signals from China at this week’s National People’s Congress that more stimulus initiatives are in the works and indications from Europe that they will increase fiscal spending should be AUD supportive. The latter is a ‘sea change’ that is a positive tailwind for the EUR, and given it is the major USD alternative this can indirectly help the still undervalued AUD recoup lost ground. Compared to our suite of ‘fair value’ models the AUD still looks ~3 cents too low. We would also remind readers that the AUD has not traded much below where it is over the last decade (AUD has been sub-$0.6350 less than ~4% of the time since 2015). Underlying factors that have cushioned the AUD down at these levels (i.e. Australia’s improved capital flow dynamics and higher terms of trade) remain in place.
AUD & NZD event radar: US Jobs Report (Tonight), US Fed Chair Powell Speaks (Sat), US CPI (12th Mar), BoC Meeting (13th Mar), China Data (17th Mar), US Retail Sales (17th Mar), BoJ Meeting (19th Mar), US Fed Meeting (20th Mar), NZ GDP (20th Mar), AU Jobs (20th Mar), BoE Meeting (20th Mar)
AUD levels to watch (support / resistance): 0.6260, 0.6290 / 0.6375, 0.6410
NZD levels to watch (support / resistance): 0.5650, 0.5690 / 0.5760, 0.5790
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
FRIDAY (7th March) USD Fed’s Bostic Speaks (11am) CNY Trade Balance (Feb) (no set time) EUR Germany Factory Orders (Jan) (6pm) EUR ECB’s Lagarde, Nagel, Knot & Panetta Speak (8:30pm)
SATURDAY (8th March) USD Jobs Report (Feb) (12:30am) CAD Jobs Report (Feb) (12:30am) USD Fed’s Bowman Speaks (2:15am) EUR ECB’s Centeno & Kazaks Speak (2:45am) USD Fed’s Williams Speaks (2:45am) USD Fed’s Kugler Speaks (4:20am) USD Fed Chair Powell Speaks (4:30am) USD Fed’s Kugler Speaks (5am)
*Note, all times/dates provided are AEDT
About the author
