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Aussie braces for volatility on Day 1 of Trump 2.0

Markets are braced for a volatile week as soon as Trump takes the oath of office at a second historic inauguration on 20th January. Any insights into Trump’s trade policy agenda will be key for FX markets, in what is otherwise a fairly quiet data week.

Aussie braces for volatility on Day 1 of Trump 2.0

 

Global markets are braced for a volatile week as soon as Trump takes the oath of office at a second historic inauguration on 20th January.

 

Any insights into Trump’s trade policy agenda will be key for FX markets, in what is otherwise a fairly quiet data week. The focus in Europe will be on January flash PMIs. In our region, markets are braced for a BoJ policy rate hike, while NZ should see an encouraging CPI for Q4.

 

Trump's inauguration speech, to be delivered straight after his swearing in ceremony, 4am Tuesday AEDT, is not really the forum for tariffs and he probably won't even explicitly broach them. Inauguration speeches are about soaring rhetoric and a grand vision for the 4yr policy agenda.

 

But Trump has vowed to hit the ground running. At a campaign style rally on the weekend he pledged, “…we're going to give them the best first day, the biggest first week and the most extraordinary first 100 days of any presidency in American history”. The latest reports suggest that as many as 200 Executive Orders could be issued quickly after he is sworn in, covering energy, immigration, government hiring policies and business regulations. For comparison President Biden signed 17 Executive Orders in the hours after taking the oath on 20 January 2021.

 

If trade measures are to be announced, they’re likely to be among the torrent of Executive Orders. There are a range of statutes at Trump’s disposal when it comes to erecting tariff barriers. Markets will glean clues about the size, speed and scope of tariffs based on any statute(s) that Trump invokes.

 

At the extreme end of the spectrum, President Trump might invoke the International Economic Emergency Powers Act ("IEEPA"), a provocative "national security" style step that bypasses many procedural hurdles such as Departmental and public review. This would confer near complete unilateral authority to impose wide ranging and aggressive tariffs, immediately.

 

Alternatively, Trump might invoke trade policy authorities under different statutes: the Tariff Act, the Trade Act or the Trade Expansion Act. Each of these statutes vary in terms of the degree of discretionary authority they confer, but the bottom line is that as a group they are not nearly as aggressive as invoking emergency powers. The difference could prove decisive for AUD in the week ahead.

 

AUD is tentatively establishing a toehold above 0.6200 at the start of the week, up modestly from 5-year lows hit early last week at 0.6131.

 

AUD’s rebound last week unfolded alongside a reassuring December US CPI and dovish Fedspeak from Governor Waller, who suggested that more Fed rate cuts are possible if we see more benign US inflation data.

 

Solid details in the local December jobs report last week were also a background positive for AUD. While full time employment fell 24k, it only unwound about half the previous month’s gain, while broader measures of labour market underutilisation eased. For all of 2024 employment grew by a very solid 444k.

 

China's year-end data dump on Friday included a moderation in the trend of property price declines and stronger industrial production.

 

Locally, there isn’t much of note until crucial Q4 CPI on 29th January.

 

AUD is putting in a mixed performance on crosses. AUD/NZD is gently grinding higher in the new year but continues to hit a ceiling around the 1.1100 level. NZ’s Q4 CPI this week will be a key consideration for the RBNZ. GDP growth has slumped and the labour market is softening. The RBNZ cut interest rates by 125bp last year and have committed to more cuts this year. A soft Q4 CPI would keep the door open to another outsized 50bp rate cut when the RBNZ next meet 19 February.

 

AUD/JPY briefly threatened 99.0+ a couple weeks ago but it has since fallen to the 96.0-97.0 area as BoJ rate hike expectations for this Friday’s meeting firmed. Markets are pricing in an 80% probability of a BoJ hike. Wages have been on a clear firming trend and BoJ Governor Ueda sounded open minded about the possibility of a hike last week.

 

AUD/EUR and AUD/GBP both saw sharp flushes down through key levels in the closing days of 2024, at 0.60 and 0.50 respectively. But both crosses have since recovered to more “comfortable” levels. Eurozone January flash PMIs and UK November labour market data will be of interest this week.

Monday

US President Trump’s Inauguration (oath taken: 4am AEST)

Tuesday

Canada Dec CPI

UK Nov Unemployment and Wage Earnings

Wednesday

NZ Q4 CPI

Australia Westpac Leading Index

Eurozone ECB President (Lagarde) to speak at World Economic Forum

Thursday

US President Trump, dialogue at the World Economic Forum

Friday

Australia S&P Global PMIs

Japan BOJ Policy Rate decision

Eurozone Jan HCOB PMIs

Browse topics

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