Aussie still stuck in the mid-to-lower gears
AUD/USD started last week in decent enough shape, eyeing off 0.6400. But the soft uptrend was challenged as the week wore on. Softer Aussie employment data, an FOMC meeting that was ultimately read as less friendly for risk assets, alongside skittish equities and emerging market currency weakness took their toll and saw AUD give up more than US1 cent. The week ahead calendars are less frenetic, headlined by Australia's Feb CPI and US Feb PCE. This week looks mostly like a placeholder ahead of President Trump's "Liberation Day" on 2 April, when another round of tariffs will be announced.
Aussie still stuck in the mid-to-lower gears
The FOMC left fed funds rate unchanged last week, as widely expected. But notably, officials revised down their 2025 growth forecast to 1.7% from 2.1%, and raised PCE expectations to 2.7% from 2.5%. That PCE revision partly reflects recent stickier price trends and is a clear nod to tariff risks. The Fed's median interest rate dot projections were unchanged, with 2 cuts signaled this year, though the distribution showed a slight hawkish migration. The overall takeaway is that the FOMCs' conviction on rate cuts this year has moderated at the margin.
Despite ongoing tariff jitters US equities staged a minor rebound last week (+0.5%), though they remain almost 8% down from their mid-Feb highs. Volatility has picked up across emerging markets though, with political and fiscal upheaval striking Turkey, Indonesia, Colombia and South Africa last week, prompting outsized routs in local equities and currencies.
Shifting over to the crosses, AUD/JPY was trading near 1mth highs just shy of 96.00 mid-last week, but the weaker Aussie employment data, a stronger than expected Japan Feb CPI and unsettled global market conditions saw AUD/JPY slip back to the 93.00-94.00 area by week's end.
AUD/EUR treaded lower, testing support at 0.5790 as Germany passed its highly anticipated bill to approve greater fiscal including an infrastructure budget worth $500 billion euros and an uncapped defence budget.
AUD/NZD had been contained to a sleepy 1.1000-1.1175 range for much of the new year but slipped to a 1.0915 low last week. NZ Q4 GDP revealed that the economy has emerged out of technical recession, growing by 0.7% in the December quarter, with rate cuts seemingly fully priced. However, AUD/NZD has clawed back declines early this week, up to 1.0968, on reports that Trump's reciprocal tariffs may be narrower than initially planned.
As this week grinds on the focus will increasingly turn to President Trump's "Liberation Day" on 2 April - another wave of tariffs. The latest reporting suggests that a narrower and more targeted approach to reciprocal tariffs will be implemented. We'll see. Trump Administration officials have also signaled that they are taking a very expansive approach that includes non-tariff barriers. That would hit markets much harder compared to a narrower approach. While Australia has minimal tariffs on US goods, flush risk will remain elevated for AUD through next week as wider-reaching tariffs could see large unwinding of global risk positions.
Moving to commodities, Israel's airstrikes on Gaza and ongoing conflict within Ukraine provided further impetus to gold's bullish momentum, the precious metal touching a high of $3057/oz last week before closing the week lower on Trump's tariff "flexibility" comments. The depth of long term structural demand for gold amid tariff and geopolitical uncertainty evidently remains very substantial. Shifting NATO dynamics, tariffs threats on allies and scarcely believable question marks about territorial integrity of Panama, Canada, Greenland & Gaza are all chipping away at the global "rules-based order". Against this backdrop gold continues its remarkable run, regularly setting new records.
Copper prices tested $10,000 last week with the US premium for copper rising to 14% over the LME equivalent as businesses rush to get ahead of potential tariffs. Iron ore probed below $100/t, which makes sense given still weak Chinese housing starts. US sanctions on Iran caused a bounce higher in crude oil.
Australia Feb CPI (market f/c: 2.5%, Westpac f/c: 2.5%) will be the key focus domestically, while abroad, the US Feb Core PCE Price Index (market f/c: 0.3%) will be closely watched. Treasurer Jim Chalmers will be presenting the Federal budget tomorrow in Canberra.
Monday
- UK, Eurozone and US March prelim manufacturing & service sector PMIs
Tuesday
- Australia 2025/26 Federal Budget
- US Conference Board Consumer Confidence
Wednesday
- Australia Feb CPI
- UK Feb CPI
- UK Chancellor Reeves delivers UK economic and budget "Spring statement"
Thursday
- US Q4 GDP (3rd release)
Friday
- US Feb Core PCE Price Index & Personal Income/Spending
- US Mar University of Michigan Consumer Sentiment (Final)
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