Market Briefing: Trump & tariffs
Read the 2025 Currency Outlook from Corpay Currency Research
US politics. President Trump is officially back in power. Reports tariffs could be implemented in a 'measured way' eased market nerves.
USD trends. Lack of follow through of election tariff threats exerted downward pressure on the USD. AUD & NZD bounced back.
Still watching. Various policies will be implemented. Vol. likely over period ahead. Short-term USD could ease helping AUD claw back more ground.
Global Trends
US politics has been in focus. Earlier today President Trump was inaugurated as the 47th US President. Outside of the inauguration there was little for markets to digest. US bond and equity markets were closed overnight for the Martin Luther King holiday, and no major economic data was released. In his speech President Trump pledged to create a golden age and prioritise American interests to reverse the nations decline. As per his campaign rhetoric this included plans to overhaul US immigration, trade, and tax policy, tackle inflation, to be more assertive abroad, and to declare an energy emergency to “drill, baby, drill”. Not a lot of policy specifics were provided, though it is expected that a flurry of executive orders will begin to be announced soon so bursts of market volatility are possible.
In terms of trade tariffs, media reports indicated that President Trump is “planning to issue a broad memorandum Monday that directs federal agencies to study trade policies and evaluate U.S. trade relationships with China and America’s continental neighbours”. These types of moves stop short of imposing new tariffs on Trump’s first day in office, as many trading partners and market participants feared due to his previous comments. According to a Trump adviser the memo lays out a vision for the trade agenda to be implemented in “a measured way”.
Markets are driven by outcomes compared to expectations. And this was on show again with the lack of a follow through on previous tariff threats soothing market fears. While US cash markets were closed, the signal from the futures markets was positive with equities set to rise and bond yields projected to fall. In FX, the lofty USD weakened. EUR has jumped back above $1.04, GBP has risen towards ~$1.2325, and USD/JPY eased to ~155.60. As mentioned yesterday, the Bank of Japan meets on Friday, and we think there is a good chance another interest rate hike is announced based no Japan’s underlying inflation trends. If realised, this could exert more pressure on USD/JPY, and given it is the second most traded currency pair this may also drag on the USD more broadly. Closer to home, NZD has appreciated to the top-end of its 2025 year to date range (now ~$0.5673), as has the AUD (now ~$0.6270, ~2.4% above last week’s low point).
As illustrated in the chart below, even after its dip our model suggests the USD is still trading too high compared to various inputs. This suggests a decent amount of a Trump risk premium has been factored in, and as such, much like the “buy the rumour, sell the fact” reaction after he first took office in 2017, we believe there could be scope for the USD to lose some more ground in the near-term. Though that will also be contingent on trade and other policies remaining ‘measured’.
Global event radar: BoJ Meeting (Fri), Global PMIs (Fri/Sat), China PMIs (27th Jan), BoC Meeting (30th Jan), US Fed Meeting (30th Jan), EZ GDP (30th Jan), ECB Meeting (31st Jan), US GDP (31st Jan)
Trans-Tasman Zone
The AUD (now ~$0.6270) and NZD (now ~$0.5673) both perked up overnight with the USD coming under downward pressure after media reports suggested newly inaugurated US President Trump might implement trade tariffs in a ‘measured’ way. This is far cry from the large-scale tariffs President Trump repeatedly threatened to implement on day one of his second term. Notably, in an illustration of how USD-driven the moves have been the AUD consolidated against the EUR, GBP, and CNH over the past 24hrs, while it lost a bit of ground versus the NZD (now ~1.1056) and rose relative to the JPY (now ~97.60).
It is quiet on the local macro front with no major data or RBA events scheduled. The next key piece of Australian economic news is Q4 CPI inflation (29 January). This will be an important input into whether the RBA lowers interest rates on 18 February. Hence, ongoing reaction to US developments will be in the AUD driver’s seat. In our opinion, based on the ‘bearish’ sentiment factored into the AUD (CFTC ‘net short’ AUD positioning is quite stretched) there is the potential for the rebound to extend a bit further near-term, barring an announcement of disruptive US trade tariffs. As our chart shows, a decent amount of risk premium looks to have been priced into the AUD given it is trading at a ~4 cent discount to the average of our suite of ‘fair value’ models. Moreover, the AUD has been tracking in ‘rarefied air’ recently as it has only been sub-$0.62 ~1% of the time since 2015.
Across the Tasman we think the NZD upturn may hit a stumbling block, and AUD/NZD could bounce back. Q4 NZ CPI is due tomorrow (Weds 8:45am AEDT). Various leading indicators point to a further moderation in NZ inflation pressures. If realised, this coupled with the weakness in NZ economic activity and widening cracks in the NZ labour market could reinforce the case for the RBNZ to deliver another 50bp rate cut when it meets on 19 February. The downshift in NZ interest rates over 2025 should be a lingering NZD headwind, in our opinion, with the relative economic and policy trends projected to help AUD/NZD edge higher over coming months.
AUD event radar: NZ CPI (Weds), BoJ Meeting (Fri), Global PMIs (Fri/Sat), China PMIs (27th Jan), NZ CPI (29th Jan), BoC Meeting (30th Jan), US Fed Meeting (30th Jan), EZ GDP (30th Jan), ECB Meeting (31st Jan), US GDP (31st Jan)
AUD levels to watch (support / resistance): 0.6130, 0.6190 / 0.6290, 0.6320
NZD levels to watch (support / resistance): 0.5600, 0.5630 / 0.5680, 0.5700
Market Moves
Peter Dragicevich
Currency Strategist - APAC
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