Market Briefing: Headline driven markets
Read the 2025 Currency Outlook from Corpay Currency Research
Tariff news. Tariff-related risk aversion & the stronger USD unwound overnight. News tariffs on Mexico & Canada will be delayed boosted sentiment.
FX swings. After falling sharply AUD & NZD are back around where they ended last week. More headline driven volatility should be anticipated.
Data flow. In the US, JOLTS job openings due tonight. In NZ, Q4 jobs report is out tomorrow. But this can be overshadowed by tariff news.
Global Trends
The fallout from the US announcing trade tariffs on three of its largest trading partners (Canada, Mexico, China) rattled nerves and sent markets into a tailspin early yesterday. But the situation remains fluid and there has been a reversal of fortunes overnight after US President Trump agreed to delay tariffs on Mexico by a month. Mexico agreed to send 10,000 National Guard officers to the border to stem the flow of fentanyl and migration into the US. Talks will continue over the next few weeks. Canada PM Trudeau held talks with President Trump this morning, and based on reports these tariffs will also be delayed for 30 days.
Risk sentiment improved after the US/Mexico news, and things received another kick along following the Canada developments. That said, on net the US S&P500 still ended the day lower (-0.8%). Bond yields across Europe fell in a typical knee-jerk risk aversion manner, particularly in the Eurozone (~8-10bps) with investors clearly concerned the EU is next in the tariff firing line. By contrast, the US yield curve flattened with the 2yr rate rising ~6bps (now 4.25%) and the 10yr nudging up (now ~4.55%). In FX, after initially jumping towards the top of its cyclical range the USD index drifted back with EUR grinding its way back over ~$1.03. GBP is hovering a bit above where it ended last week (now ~$1.2444), while the volatile environment has seen USD/JPY tick lower (now ~154.85). USD/CAD (now ~1.4420) has more than unwound yesterday’s spike, with USD/MXN, which traded in a ~4% range yesterday, also below where it closed on Friday. Closer to home, NZD (now ~$0.5625) rebounded from its lows and the AUD (now ~$0.6225) has recovered lost ground after falling almost 2% during yesterday’s turbulence.
Markets will remain subject to tariff-related headline risk over the period ahead. Hence, further bursts of volatility should be anticipated. The positive outcome of the talks between the US and Canada looks set to boost risk appetite near-term, which in turn should weigh on the USD, in our opinion. But as seen over the past 24hrs things can change quickly. In terms of the data flow, tonight US JOLTS job openings (a gauge of labour demand) are released (2am AEDT). We believe signs the US jobs market is cooling may revive some US Fed interest rate cut expectations. If realised, this might also exert pressure on the USD
Global event radar: BoE Meeting (Thurs), US Jobs (Fri night), US CPI (13th Feb), US Retail Sales (15th Feb), RBA Meeting (18th Feb), RBNZ Meeting (19th Feb), Global PMIs (21st/22nd Feb)
Trans-Tasman Zone
AUD and NZD have been whipped around over the past 24hrs by US-tariff related developments. As discussed above, the initial burst of risk aversion stemming from weekend news the US is implementing tariffs on Mexico, Canada, and China saw the USD surge and other currencies like the AUD and NZD drop like a stone. However, constructive discussions between the parties overnight and announcement that tariffs on Mexico and Canada will be put on ice for 30 days has seen risk sentiment rebound. On net, the AUD (now ~$0.6225) and NZD (now ~$0.5625) are back around where they ended last week with yesterday’s ~2-2.1% decline unwound.
The headline driven swings in the AUD and broader FX markets at the start of the new week is another reminder that bursts of volatility and wider intra-day ranges should be anticipated in the current macro environment. Since the late-1980s the average daily trading range in the AUD has been ~1%. This hasn’t been the recent norm, and some participants may have forgotten about AUD’s inherent volatility. In the last 2-years the AUD’s daily trading range has only been larger than its long run average about ~1/3 of the time. Yesterday’s AUD range was the widest since last August.
More bursts of volatility should be anticipated over the period ahead. But as outlined yesterday, when it comes to markets it should be remembered that what's important isn’t if something is ‘good’ or ‘bad’ but rather if it is ‘better’ or ‘worse’ than what is factored in. Based on this, we continue to believe that further downside potential in the AUD should be somewhat constrained. This is because the AUD is already trading at a discount to fundamentals (it is tracking ~4-5 cents below our ‘fair value’ models), an underlying bearishness is already embedded (‘net short’ AUD positioning, as measured by CFTC futures, is elevated), and it has not sustainably trading much below where it is in recent times (the AUD has only been sub-$0.62 ~1% of the time since 2015). Moreover, as was the case during President Trump’s first term, we believe any tariff induced export headwinds in China are likely to be offset via steps to bolster commodity-intensive infrastructure investment. This is where Australia’s key exports are plugged into. Australia’s export basket also looks rather tariff-insulated given its minimal domestic manufacturing and with it running a trade surplus with the US. In our mind, this may help the AUD pick up ground against currencies like the EUR, CAD, NZD and CNH. Indeed, we think AUD/NZD could also be boosted by tomorrow’s Q4 NZ jobs report. The data is predicted to show the cracks in the NZ labour market are widening. If realised, this could solidify expectations for another 50bp RBNZ rate cut later this month.
AUD & NZD event radar: NZ Jobs (Weds), BoE Meeting (Thurs), US Jobs (Fri night), US CPI (13th Feb), US Retail Sales (15th Feb), RBA Meeting (18th Feb), RBNZ Meeting (19th Feb), Global PMIs (21st/22nd Feb)
AUD levels to watch (support / resistance): 0.6080, 0.6130 / 0.6230, 0.6270
NZD levels to watch (support / resistance): 0.5510, 0.5540 / 0.5650, 0.5690
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
TUESDAY (4th February) No major events or data scheduled
WEDNESDAY (5th February) EUR ECB’s Villeroy Speaks (12:30am) USD JOLTS Job Openings (Dec) (2am) USD Fed’s Bostic Speaks (3am) USD Fed’s Daly Speaks (6am) NZD Jobs Report (Q4) (8:45am) JPY Labor Cash Earnings (Dec) (10:30am) USD Fed’s Jefferson Speaks (11:30am) CNY Caixin PMI – Services (Jan) (12:45pm) EUR ECB Wage Tracker (8pm)
THURSDAY (6th February) USD ADP Employment (Jan) (12:15am) EUR ECB’s Lane Speaks (1am) USD Fed’s Barkin Speaks (1am) USD ISM Services (Jan) (2am) USD Fed’s Goolsbee Speaks (6:30am) USD Fed’s Bowman Speaks (7am) USD Fed’s Jefferson Speaks (11:30am) AUD Trade Balance (Dec) (11:30am) JPY BoJ’s Tamura Speaks (12:30pm) EUR Germany Factory Orders (Dec) (6pm) USD Fed’s Waller Speaks (6:30pm) GBP Bank of England Decision (11pm)
FRIDAY (7th February) USD Initial Jobless Claims (12:30am) EUR ECB’s Nagel Speaks (3:15am)
USD Fed's Logan Speaks (9:10am)
EUR Germany Industrial Production (Dec) (6pm) EUR ECB’s Guindos Speaks (7:45pm) GBP BoE’s Pill Speaks (11:15pm)
SATURDAY (8th February) USD Jobs Report (Jan) (12:30am) CAD Jobs Report (Jan) (12:30am) USD Fed’s Bowman Speaks (1:25am) USD Uni. of Michigan Sentiment (Feb P) (2am) USD Fed’s Kugler Speaks (4am)
*Note, all times/dates provided are AEDT
About the author
