Market Briefing: Factoring in a "Trumpcession"
Risk off. Concerns about US growth due to tariffs has seen equities & bond yields tumble. USD also weakened. AUD/USD & NZD/USD rose.
Tariff news. Nations mentioned potential retaliation, but none have walked the walk. Trump open to reducing tariffs in return for "phenomenal" deals.
US data. US jobs report due tonight. Fed Chair Powell also speaking on the outlook. Will Powell be more worried about inflation or growth?
Global Trends
Yesterdays unveiling of the larger than anticipated and sweeping US reciprocal tariffs sparked a rather acute bout of volatility. The projected sharp increase in the US’ effective tariff rate on the back of the new measures to levels last seen a century ago has heightened concerns about the growth outlook. The door to negotiate a deal with the US is open, but this is on the proviso countries restrain themselves as retaliation is likely to take that option off the table. So far various nations have flagged possible countermeasures, but none have walked the walk.
As outlined yesterday, an economically significant share of US imports are captured by the higher levies, and as such a hit to US growth is on the horizon. US businesses and consumers won’t be able to avoid higher prices given the tariffs are broad-based and domestic production can’t fill the void quickly. This in turn is likely to sap confidence, reduce activity volumes, and in time see the labour market deteriorate, particularly as the US economy looks to have been losing momentum ahead of the announcements. Markets agree with a Trump policy induced US recession starting to be factored in, and this has seen US assets underperform.
Global equities tumbled, though the ~2.6% drop in the EuroStoxx600 was dwarfed by the ~6% fall in the US NASDAQ and ~4.8% decline in the broader S&P500. This is the biggest one-day slide in the NASDAQ since the dark days of COVID in March 2020. Bond yields also plunged with US rates ~10-18bps lower as expectations the US Fed could soon restart its interest rate cutting cycle ramp up. The benchmark US 10yr yield (now ~4.03%) is at a multi-month low, with markets discounting ~4 US Fed rate reductions by January 2026. Oil slumped with WTI crude shedding 5.8% (now ~US$66.60/brl), while copper (-4.3%) and iron ore (-1.5%) also went backwards due to growth worries. In FX, the USD weakened with EUR jumping (now ~$1.1054, levels last traded in October) and the safe-haven JPY outperforming (at ~146.05 USD/JPY is at a 6-month low). Elsewhere, USD/SGD dipped to its 200-day moving average (~1.3335), NZD strengthened ~1% (now ~$0.5798), and the AUD rose (now ~$0.6328).
Reaction to the US tariffs should be expected to remain a market driver for some time, especially given the possibility of reprisals and/or deals being struck. On top of that, the monthly US jobs report is due tonight (11:30pm AEDT) with US Fed Chair Powell also discussing the outlook (2:25am AEDT). We see a chance the US data shows conditions have weakened, and that Chair Powell reiterates tariff inflation is “transitory” given it is a level adjustment in prices while also generating growth headwinds. In our opinion, this type of mix can keep the USD under downward pressure.
Global event radar: US Jobs (Tonight), Fed Chair Powell (Tonight), RBNZ Meeting (9th Apr), US CPI (10th Apr), BoC Meeting (16th Apr), ECB Meeting (17th Apr)
Trans-Tasman Zone
Concerns about US growth following yesterday’s ‘reciprocal’ tariff announcements has weighed on the USD (see above). This has helped AUD/USD perk up towards its ~6-month average (now ~$0.6328), while the NZD is at the upper end of its year-to-date range (now ~$0.5798). That said, the ‘risk off’ backdrop illustrated by the sizeable equity market declines, lower bond yields, and falling commodity prices has seen the AUD underperform on the crosses. AUD/JPY has shed ~1.6% to be down at ~92.35, the bottom of its multi-month range. AUD/EUR (-1.3% to ~0.5727) is around levels last traded in 2020, as is AUD/GBP (now ~0.4831). By contrast, AUD/CNH (now ~4.6080) ticked up slightly.
As discussed above, we think tariff developments should continue to be a market driver over the period ahead given the prospect other nations retaliate and/or deals are reached with the US that sees levies wound back. More bursts of AUD volatility are anticipated over the near-term, particularly with the US jobs report (11:30pm AEDT) and US Fed Chair Powell (2:25am AEDT) also on the schedule tonight.
That said, as outlined previously, on net, we think further falls in the AUD shouldn’t be that pronounced, and that over the medium-term there is more upside than downside potential. In our opinion, a lot of negativity still appears factored in (the AUD is ~4 cents below our 'fair value' models, and positioning metrics such as CFTC futures are already 'bearish'). Structural forces that have supported the AUD around these levels remain (i.e. Australia’s improved capital flow trends and higher terms of trade). The AUD has only closed below $0.63 ~3% of the time since these dynamics came to the fore about a decade ago. Additionally, when it comes to the US’ tariffs, we believe that: (a) the broad-based nature of the ‘reciprocal’ duties will create self-inflicted wounds on the US economy that drag the USD lower as a stepdown in activity/higher unemployment sees the US Fed re-start its interest rate cutting cycle. This was the trend observed over the past 24hrs; (b) as per President Trump’s first term any tariff induced export headwinds in China/Asia should be offset via measures aimed at boosting commodity-intensive infrastructure investment and domestic demand. This is where Australia’s key exports feed into; and (c) Australia’s trade relationship with the US is minimal, hence direct economic consequences should be manageable. Only ~4% of Australia's exports are sent to the US.
AUD & NZD event radar: US Jobs (Tonight), Fed Chair Powell (Tonight), RBNZ Meeting (9th Apr), US CPI (10th Apr), BoC Meeting (16th Apr), NZ CPI (17th Apr), AU Jobs (17th Apr), ECB Meeting (17th Apr)
AUD levels to watch (support / resistance): 0.6270, 0.6310 / 0.6370, 0.6410
NZD levels to watch (support / resistance): 0.5700, 0.5740 / 0.5830, 0.5860
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
FRIDAY (4th April) AUD Household Spending (Feb) (11:30am) EUR Germany Factory Orders (Feb) (5pm) CAD Jobs Report (Mar) (11:30pm) USD Jobs Report (Mar) (11:30pm)
SATURDAY (5th April) USD Fed Chair Powell Speaks (2:25am) USD Fed’s Barr Speaks (3am) USD Fed's Waller Speaks (3:45am)
*Note, all times/dates provided are AEDT
About the author
