Market Briefing: Trump talk continues
Read the 2025 Currency Outlook from Corpay Currency Research
Trump talk. More comments from US President Trump overnight, but market reaction was relatively muted. Equities rose, while oil & the USD eased.
AUD & NZD. The USD pull-back is supporting AUD & NZD. Both are near the top of their respective 1-month ranges. AU CPI due next week.
BoJ hike? BoJ meets today. Another hike expected. We think the BoJ is 'behind the curve'. Higher rates can help the JPY lift over the medium-term.
Global Trends
As has been the case the past few days comments by US President Trump in a virtual appearance at the World Economic Forum have been in focus, with some generating a bit of volatility in a couple of markets. Much of the President’s message has been heard before, such as his call for foreign countries to make their products in the US or face tariffs. But there were a few new soundbites. President Trump indicated he would ask oil producers such as OPEC and Saudi Arabia to lower prices (and in turn headline inflation), and he also called for lower interest rates, stressing that “I’ll demand” they drop immediately. The latter was something President Trump repeatedly stated during his first term in office. The independence of central banks like the US Fed means these types of comments from politicians should be taken with a pinch of salt particularly as the economic environment is already pointing to rate cuts in 2025.
After closing at a record high yesterday the US S&P500 has pushed up further (+0.5%). Bond yields endured some modest swings around the Trump comments, but on net the US curve has steepened with the 2yr rate a fraction lower (-1bps to 4.29%) and the 10yr rate higher (+3bps to 4.64%). Oil prices endured a little volatility on the back of President Trump with the pullback in WTI crude (which has been unfolding over the past week) extending (-1.5% to US$74.3/brl). In FX, the USD weakened modestly. The USD’s positive correlation with energy prices, which kicked into gear a few years ago after the US switched to becoming a net energy exporter, looks to have been a factor overnight. EUR tread water (now ~$1.0425), GBP nudged up (now ~$1.2364), and USD/JPY lost some ground (now ~155.85) ahead of today’s Bank of Japan meeting. NZD (now ~$0.5680) ticked higher, as did the AUD (now ~$0.6290) which is at the upper end of its 1-month range.
Today, attention will be on the BoJ decision (no set time). Markets are discounting a ~90% chance the BoJ delivers another hike with a couple of increases factored in over 2025. Based on Japanese inflation trends we believe the BoJ is ‘behind the curve’ and more policy normalisation is inevitable. Over the medium-term, narrower yield differentials between other nations and Japan should help the JPY bounce back. Given it is the second most traded currency pair falls in USD/JPY can drag on the USD, which we feel might also remain under pressure due to the lack of ‘shock and awe’ tariff announcements from President Trump and with today’s global PMIs potentially showing less US outperformance.
Global event radar: BoJ Meeting (Today), Global PMIs (Tonight), 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 ~$0.6290) and NZD (now ~$0.5680) have extended their upward drift with softness in the USD, upswing in equity markets, and lack of punitive trade tariffs being unveiled by the US (particularly on China) supportive recently. Both the AUD and NZD are currently tracking near the upper end of their respective 1-month ranges. On the crosses, the AUD has consolidated with modest gains recorded against the EUR, CAD and CNH over the past 24hrs, while it eased a touch versus the JPY and GBP.
AUD/JPY is in focus with the BoJ meeting today (no set time for announcement). As discussed above, we and the wider market think another BoJ rate hike is probable and that further moves are likely down the track due to Japan’s inflation pressures. Over the medium-term, we believe the diverging policy trends between a tightening BoJ and loosening RBA should exert some more downward pressure on AUD/JPY. Bursts of market volatility stemming from geopolitical uncertainty could also be JPY supportive. We are projecting AUD/JPY to edge down to 95 later this year.
Locally, next important data point is Q4 CPI inflation (29 January). This will be a crucial input, along with new staff forecasts, as to whether the RBA kicks off its interest rate cutting cycle on 18 February. Markets view it as a ~70% chance with a move fully priced in by the second 2025 meeting on 1 April. We aren’t as sure on the timing and think the resilience in the labour market and supportive fiscal impulse could see the RBA hold off a bit longer. Irrespective, the AUD’s underlying fortunes are more contingent on USD trends. We believe the elevated USD can remain on the backfoot near term, with another rate hike by the BoJ and downshift in USD/JPY compounding the unwinding of the ‘trade tariff’ risk premium that had been baked in. This, and a paring back of ‘bearish’ sentiment (CFTC ‘net short’ AUD positioning is stretched and the AUD is trading ~4 cents below our ‘fair value’ models) may help AUD/USD grind higher in the short-term, in our opinion.
AUD event radar: BoJ Meeting (Today), Global PMIs (Tonight), 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): 0.6170, 0.6250 / 0.6300, 0.6330
NZD levels to watch (support / resistance): 0.5600, 0.5620 / 0.5690, 0.5730
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
FRIDAY (24th January)
JPY BoJ Meeting (no set time)
JPY CPI Inflation (Dec) (10:30am)
SGD MAS Decision (11am)
EUR France PMIs (Jan P) (7:15pm)
EUR Germany PMIs (Jan P) (7:30pm)
EUR PMIs (Jan P) (8pm)
GBP PMIs (Jan P) (8:30pm)
EUR ECB President Lagarde Speaks (9pm)
SATURDAY (25th January)
USD PMIs (Jan P) (1:45am)
*Note, all times/dates provided are AEDT
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