Market Briefing: US tariffs: delayed not derailed
Read the 2025 Currency Outlook from Corpay Currency Research
Trump vol. Markets were swung around by tariff news on Pres. Trump's first day in office. But on net, equities rose while bond yields & the USD declined.
Delayed not derailed. Wide ranging reviews into US trade were announced. Findings due by 1 April. US trade tariffs still in the pipeline.
AUD & NZD. Softer USD has supported AUD & NZD. NZ headline CPI also a touch firmer than forecast. AU Q4 CPI due next week.
Global Trends
US President Trump’s second first day in office created a lot of buzz and generated a burst of volatility across markets. Initial positivity that large scale tariffs weren’t being implemented on day one, as had been repeatedly threatened, and that the process will be ‘measured’ was partially unwound after President Trump made off-the-cuff remarks as he signed a laundry list of Executive Orders. When asked about 25% tariffs on Mexico and Canada President Trump noted that “I’ll think we’ll do it on February 1st”. That said, the shift in sentiment also didn’t last with ‘glass half-full’ markets bouncing back as the day unfolded.
On net, a ‘relief rally’ has come through with global equities edging higher (US S&P500 +0.9%). US small-cap stocks outperformed (Russell2000 +1.9%) on expectations deregulation will be a cornerstone of the Trump agenda and hopes US’ economic strength can continue. Bond yields declined with US rates shedding ~1-6bps with the benchmark 10yr slipping to 4.56%, roughly inline with where it started 2025. There were similar moves in UK yields, while relatively smaller declines occurred in the Eurozone. In FX, the USD was whipped around by the conflicting news, but on balance it has softened a little. EUR is hovering just over ~$1.04, GBP is near ~$1.2330, and ahead of Friday’s Bank of Japan meeting where we think another interest rate hike is probable USD/JPY is close to mid-December levels (now ~155.55). Elsewhere, the AUD is tracking towards the top-end of its ~1-month range (now ~$0.6267), and the NZD (now ~$0.5675) also supported by a modest upside surprise in this mornings Q4 NZ headline CPI figures.
A read through of the Trump Administrations memo on trade and other commentary indicates that tariffs are a key part of the policy platform. And while they have been delayed, they aren’t derailed. Indeed, the findings of a wide-ranging review into the US’ trade relationships is due by 1 April. Moreover, President Trump’s focus on rebalancing the US’ trade relations, raise tariff revenue to counteract the cost of extending existing income tax cuts, and using tariffs as a negotiating tool all point to them being imposed over the period ahead. This points to intermittent bouts of market volatility on the horizon as markets digest incoming news. However, in the very short-term, given markets are driven by outcomes compared to expectations, we believe there is scope for the lofty USD to lose a bit more ground, barring on deterioration in risk sentiment. As our chart shows, ‘bullish’ sentiment towards the USD is elevated with ‘net long’ positioning (as measured by CFTC futures) at the upper end of its historic range.
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
AUD and NZD have been swung around by the US tariff-related news over the past 24hrs, but on net both are still tracking towards the top of their recent ranges. At ~$0.6267 the AUD is ~2.3% above its cyclical low, while the NZD (now ~$0.5675) has bounced back by slightly more over recent weeks. On the crosses the AUD has essentially tread water with minimal net moves coming through against the other majors.
As mentioned over the past few days the next major AU-centric data point is Q4 CPI inflation (29 January). This will be a key input, along with new RBA staff forecasts, as to whether the Board announces a rate cut on 18 February. Markets are assigning it a ~70% chance with a move fully discounted by the 1 April meeting. We aren’t as sure on the timing and think the ongoing resilience in the labour market and fiscal impulse could see the RBA hold off a bit longer. Irrespective, the AUD’s near-term fortunes will be driven by US news, especially with President Trump now officially back in office. In our opinion, with the USD coming under some pressure and a lot of ‘bearish’ sentiment factored into the AUD (CFTC ‘net short’ AUD positioning is stretched and the AUD is trading ~4 cents below our ‘fair value’ models) there is the potential for the rebound to extend in the short-term. That said, the prospect of Trump induced bursts of volatility and wider intra-day ranges in currencies like the AUD are also probable. Note, since the late-1980’s the average daily trading range in the AUD has been ~1%. While the range was wider than that over the past 24hrs this hasn’t been the recent norm, and 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.
Across the Tasman, the NZD also garnered support from Q4 NZ headline CPI coming in slightly above the market and RBNZ’s forecasts (2.2%pa). But this was due to external (i.e. tradeable) prices. Domestic inflation (i.e. non-tradeable) cooled more than the RBNZ was anticipating. The impact from the RBNZ’s past aggressive tightening is still working through the system. And with growth subdued and cracks in the labour market widening a further reduction in interest rates is anticipated. Another 50bp rate cut at the 19 Feb RBNZ meeting may still be on the cards, in our view. The step down in NZ interest rates is a medium-term headwind for the NZD with the diverging economic and policy trends also pointing to AUD/NZD edging higher over coming months.
AUD event radar: 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): 0.6170, 0.6210 / 0.6290, 0.6320
NZD levels to watch (support / resistance): 0.5600, 0.5620 / 0.5690, 0.5720
Market Moves
Peter Dragicevich
Currency Strategist - APAC
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