Market Briefing: Holding on for the ride
Market jitters. Concerns about upcoming US tariffs dampened sentiment. USD ticked up. Cyclical currencies like the AUD & NZD underperformed.
RBA today. No interest rate cut anticipated. But the door to more easing should be left open. It is a matter of when, not if, the RBA moves again.
Tariff news. US set to announce 'reciprocal' tariffs in a few days. There is still a lot of uncertainty about what this means. More volatility expected.
Global Trends
Markets remain fixated on the upcoming US ‘reciprocal’ tariff announcements. 'Liberation Day’, as President Trump is calling it, will take place on 2 April US time, so we should expect increased volatility over coming days. There is still a lot of uncertainty about what will be unveiled. According to a White House spokesperson overnight “country-based tariffs” are in the pipeline and that “no exemptions” will be made at “this time”. Industry specific tariffs are also on the table.
While at face value this seems broader than last week’s comments that only the ‘dirty 15’ nations/regions the US has persistent trade deficits with could be in the tariff firing line, the economic reality is that the rhetoric isn’t that much different. Those 15 countries/regions account for ~86% of the US’ imports (see chart below). Within that, four (Canada, Mexico, the EU, China) explain the lion’s share (~60% of US imports), and three have already had tariffs imposed on goods they ship to the US.
The nervousness about the impending tariffs generated a bit of jumpiness in various asset classes. Asian and European equities fell yesterday, but after opening lower the US S&P500 clawed its way back into positive territory by the end of trade (+0.6%). Nevertheless, it has been a torrid run over the past few weeks with the S&P500 shedding ~5.8% in March, its biggest monthly decline since December 2022. US bond yields also extended their move lower with rates falling ~3-4bps across the curve. Elsewhere, gold hit yet another record high and WTI crude oil rose nearly ~3% with a higher risk premium being attached after President Trump said he was “very angry” with President Putin and threatened secondary tariffs on buyers of Russian oil if a ceasefire with Ukraine isn’t agreed. In FX, the USD index ticked up with modest net gains versus the EUR (now ~$1.0820), GBP (~$1.2918) and USD/JPY (now ~149.97) over the past 24hrs. Cyclical currencies like the NZD (now ~$0.5677), SGD (now ~1.3429), and AUD (now ~$0.6270) lost ground despite yesterday’s China business PMIs indicating growth momentum is turning the corner.
Barring outsized surprises in the data releases, and/or an unexpected policy change by the RBA (2:30pm AEDT) we think FX markets will be driven by US tariff developments. The looming US announcement is the main game in town. As mentioned, what will be implemented is up in the air. Hence, while renewed bouts of turbulence on the back of hefty ‘headline’ tariff rates may generate some USD strength near-term, over the longer-run we remain of the opinion that as tariffs are self-inflicted economic wounds and should only generate a temporary inflation jump the USD could trend lower as growth differentials between the US and other nations narrow and as a loosening in the US labour market brings interest rate cuts by the US Fed back on the agenda.
Global event radar: RBA Meeting (Today), EZ CPI (Tonight), US Reciprocal Tariffs (Weds/Thurs), US Jobs (Fri), Fed Chair Powell (Sat), RBNZ Meeting (9th Apr), US CPI (10th Apr), BoC Meeting (16th Apr), ECB Meeting (17th Apr)
Trans-Tasman Zone
US tariff related nervousness and weakness in global equities exerted a little more downward pressure on the AUD (now ~$0.6270) and NZD (now ~$0.5677) at the start of the new week (see above). As a result of the recent pull-back, the AUD has eased back just below its year-to-date average, while the NZD is broadly in the middle of its ~3-month range. The global growth worries also weighed on the AUD crosses with falls of ~0.2-0.7% recorded against the EUR, JPY, GBP, CAD, and CNH over the past 24hrs. AUD/CNH (now ~4.5385) is tracking towards the lower end of its 2025 range, as is AUD/EUR (now ~0.5774), while AUD/GBP (now ~0.4835) touched a fresh multi-year low.
Locally, retail sales for February are released today (11:30am AEDT), with the RBA’s decision (2:30pm AEDT) and press conference (from 3:30pm AEDT) also in the spotlight. In terms of the RBA, as the easing cycle has kicked off, the odds of another rate cut today shouldn’t be viewed as zero. However, we do believe it is a low probability. Markets seem to agree with traders assigning it a ~9% chance of occurring, and only 1 of the 30 analysts surveyed is forecasting it. That said, it is a matter of when, not if, more interest rate relief is delivered. We think the 20 May RBA meeting is the next most likely time for another rate cut as this would allow policymakers time to digest this week’s US tariff news, incorporate the quarterly Australian CPI (released 30 April) into the outlook, gauge the wages pulse (14 May) and state of the local jobs market (15 May) and avoid the politics of the Australia Federal Election (set to take place on 3 May).
As flagged over the past few weeks, more short-term bursts of AUD volatility should be anticipated around the upcoming US tariff announcements (Weds/Thurs AEDT). But we don’t expect further falls in the AUD to be long-lasting or overly large. Over the medium-term we continue to believe there are uneven risks for the AUD (i.e. more upside than downside potential). In our judgement: (i) a decent amount of negativity already looks factored in (the AUD is ~4 cents below our 'fair value' models); and (ii) structural forces that have been supporting the AUD at these low 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 2015. Added to that, in terms of trade risks, we think that: (a) much like during President Trump’s first term any tariff induced export pain in China should be offset via measures aimed at boosting commodity-intensive infrastructure investment. This is where Australia’s key exports are plugged into; and (b) Australia’s direct trade relationship with the US is minimal (only ~4% of Australia's exports are sent to the US). This should be AUD supportive on some of the crosses.
AUD & NZD event radar: RBA Meeting (Today), EZ CPI (Tonight), US Reciprocal Tariffs (Weds/Thurs), US Jobs (Fri), Fed Chair Powell (Sat), 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): 0.6190, 0.6220 / 0.6295, 0.6320
NZD levels to watch (support / resistance): 0.5600, 0.5650 / 0.5700, 0.5750
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
TUESDAY (1st April) JPY Tankan Survey (Q1) (10:50am) AUD Retail Sales (Feb) (11:30am) CNY Caixin PMI – Manufacturing (Mar) (12:45pm) AUD RBA Decision (2:30pm) AUD RBA Gov. Bullock Speaks (3:30pm) GBP BoE’s Greene Speaks (7:15pm) EUR ECB's Cipollone Speaks (7:30pm) EUR CPI Inflation (Mar P) (8pm) EUR ECB President Lagarde Speaks (11:30pm)
WEDNESDAY (2nd April) USD Fed’s Barkin Speaks (12am) USD JOLTS Job Openings (Feb) (1am) USD ISM Manufacturing (Mar) (1am) EUR ECB’s Lane Speaks (3:30am) AUD RBA’s Kent Speaks (10:25am) AUD Building Approvals (Feb) (11:30am) EUR ECB’s Schnabel Speaks (9:30pm) USD Reciprocal Tariff Announcement (no set time) USD ADP Employment (Mar) (11:15pm)
THURSDAY (3rd April) USD Reciprocal Tariff Announcement (no set time) USD Fed’s Kugler Speaks (7:30am) AUD Job Vacancies (Q1) (11:30am) AUD Trade Balance (Feb) (11:30am) AUD RBA Financial Stability Review (11:30am) CNY Caixin PMI – Services (Mar) (12:45pm) EUR ECB's Guindos Speaks (6:20pm) EUR ECB's Schnabel Speaks (9pm) EUR ECB Meeting Minutes (10:30pm) USD Trade Balance (Feb) (11:30pm) USD Initial Jobless Claims (11:30pm)
FRIDAY (4th April) USD ISM Services (Mar) (1am) USD Fed’s Jefferson Speaks (3:30am) USD Fed’s Cook Speaks (5:30am) 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
