Aussie girds itself ahead of Liberation Day tariffs

AUD/USD kept its head above water last week, running into support in the 0.6280 area consistently and probing into the 0.63s everyday (high last week was 0.6331). President Trump's announcement of a 25% tariff on US automobile imports, a weaker than expected Feb monthly Australian CPI and looming reciprocal tariffs this week warded off any moves higher. These are small ranges though, and shouldn't come as too much of a surprise ahead of a potentially consequential week ahead. The bigger levels are roughly 0.6200 and 0.6400, AUD/USD's range over the last six weeks.

The week ahead is decisive, including an RBA Board meeting, China PMIs, 2 April Liberation Day tariffs, US March non-farm payrolls and comments from Fed Chair Powell.

Domestically, Australia's Feb CPI printed a touch lower than expected at 2.4% (vs exp 2.5%), largely driven by a moderation in dwelling and electricity prices, the latter attributable to cost of living relief measures.

The 2025 Federal Budget was delivered Tuesday, containing mostly as expected (pre-election) cost of living relief measures, including a 2ppt cut to the lowest tax bracket over the next 2 years. The budget deficit is forecast to widen to $27.6 billion for FY24/25. PM Albanese called a Federal election for 3 May. The polls have been breaking in favour of the ALP lately.

A slightly softer CPI and a typical pre-election budget for households is a wash and rates markets are sticking firmly to their bets - about 18bp in RBA rate cut risk is priced for the Bank's 21 May meeting and about -70bp through to year's end. President Trump's 2 April tariffs and payrolls later in the week can have marginal impacts on RBA rate cut pricing, but Q1 CPI, due at the end of this month, as always will be the overwhelming factor.

US markets continue to battle an adverse sentiment shift around the growth and inflation outlook, and it was on display again on Friday. The data mix was less than ideal. US core PCE lifted by 0.4% in Feb (vs exp 0.3%), household inflation expectations were revised higher still in March, while real personal spending scraped higher by 0.1% (vs exp 0.3%). This may be a sign that softening sentiment is beginning to feed into weaker hard data. The S&P500 fell 2% on Friday and is back within striking distance of the Feb-Mar 10% correction lows. US 10-year yields fell 11bp on Friday, to 4.25%.

Encouragingly though, US personal incomes continue to grow at a decent clip, so much so that the US personal savings rate has jumped to 4.6%, up more than 1ppt in the last two months. US households have the spending wherewithal (for now), they're just mostly uncertain.

AUD/USD has remained fairly steady in the face of heightened global risks. However 2 April Liberation day tariffs could trigger outsized volatility and possibly stress the wide-channelled mild uptrend that AUD has maintained since the start of this year.

In the last couple weeks expectations gravitated towards a more targeted application of Liberation Day tariffs, focussing mostly on the "dirty 15" countries that have the largest trade surpluses with the US. Reporting and comments from the President suggested that the US would be also looking to merely equalise tariff rates, while non tariff barriers would be revisited at a later date.

But the latest signals coming from the White House suggest that there has been a last minute re-think, with President Trump favouring another model - "big and simple". Officials are reportedly devising plans that include much higher tariffs, around 20%, with few exceptions. That sounds a lot like Trump's campaign pledge for universal tariffs.

While Australia has expressed no desire to retaliate, Canada, Europe and China are readying themselves to impose retaliatory measures, the former planning tariffs on more than CAD$125 billion worth of US goods.

Moving to the crosses; AUD/JPY regained some losses mid last week, peaking at 95.40 following Japanese PM Ishiba's comment that the impact of Trump's 25% automobile tariffs on Japan's economy will be "very big". However, the cross broke below 93.50 today, largely dragged by a stronger than expected Tokyo CPI last Friday, a sell-off in USD/JPY and looming liberation day volatility.

AUD/EUR also underperformed over the last week, down 0.4% on the back of AUD's risk sensitivity and EUR/USD's newfound resilience.

AUD/NZD has largely retraced last Monday's break below 1.0920, trading towards 1.1000.

Gold prices continue to rocket higher, with new records hit last week and again to start the week. Haven demand remains robust leading up to Trump's reciprocal tariffs. Gold soared further today, setting a fresh record high at $3115/oz. Demand is broadbased and especially concentrated within ETFs and from central banks amid geopolitical and US policy uncertainty.

Copper demand has picked up massively in the last month, the metal reaching highs above $10,000 as US suppliers scramble to stockpile inventories ahead of looming tariffs which may reportedly come into effect sooner than expected. However auto tariffs announced last week saw prices fall 0.53% to $9794.

Iron ore was largely unchanged on Friday with support for the metal stabilising around $102.20, on the back of China's recent stimulus announcements providing a more targeted and resolute approach to restabilising its economy.

Liberation Day tariffs will monopolise the news feeds this week but there's other important happenings too. The RBA Board meets, their first with the new Monetary Policy Board (MPB) structure. Rates will of course remain on hold. We'll be curious to see if Governor Bullock repeats her comments markets are too aggressive in discounting rate cuts.

US March non-farm payrolls loom on Friday too. Consensus is girding itself for a softer update, at 138k vs 151k in the previous month. DOGE budget cuts and layoffs are part of the consensus equation and if jobs print below consensus sentiment will take another leg lower. The wrinkle is that the White House has announced a "deferred resignation program", allowing federal workers to stay on the payrolls through to end Sept, but without having to work and possibly having their duties eliminated in the meantime. Technically, this means large scale federal workforce layoffs may not appear in the US payrolls report for sometime.

Tuesday

Australia RBA Monetary Policy Meeting, Feb Retail Sales & Mar CoreLogic Home Prices

Japan Q1 Tankan Manufacturing Survey
US Mar ISM Manufacturing Index & Feb JOLTS Job Openings

Wednesday

Australia Feb Building Approvals & Job Vacancies

US Liberation Day reciprocal tariff announcement

Thursday

Australia Mar S&P Global Composite (Final) & Feb Trade Balance
RBA Governor Bullock appears before Senate panel
US Mar ISM Services Index

Friday

Australia Feb Household Spending
US Mar Non-farm Payrolls and Unemployment Rate
Fed Chair Powell speaks

Kaitlyn Buhariwalla

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