Aussie tariff-ied and tariff-fried after Liberation Day
A brutal week for markets saw AUD/USD collapse almost 5% on Friday, the pair dipping below 0.6000 for the first time in 5 years. Markets are hostage to tariff headlines right now - retaliation from Europe, the potential for offsetting fiscal and monetary policy relief from China, and critically, gauging President Trump's resolve around sticking with severe tariffs. As of Monday afternoon the Administration remain defiant.
Aussie tariff-ied and tariff-fried after Liberation Day
A brutal week for markets saw AUD/USD collapse almost 5% on Friday, the pair dipping below 0.6000 for the first time in 5 years. While AUD/USD intitially betrayed resilience over Thursday's reciprocal tariffs announcement, by Friday, US recessionary fears strangled markets and set-off a broad sell-off across global equity, credit and commodity markets. China's quick retaliation - a 34% tariff on US products - was the final nail in the coffin. Markets will likely remain gripped by aftershocks and await retaliatory measures from Europe, leaving AUD vulnerable.
"Liberation Day" tariffs galvanised markets across the world. President Trump announced a universal 10% tariff and reciprocal country tariffs, some of the more notable including:
- 46% on Vietnam;
- 36% on Thailand;
- 34% on China (stacked on the 20% already imposed, taking the total net increase on China to 54%);
- 32% on Switzerland, Taiwan and Indonesia;
- 25% on South Korea;
- 24% on Japan;
- 20% on EU countries; and
- 10% on Australia, NZ and the UK
China promptly retaliated against the US on Friday evening, imposing a 34% tariff. US equities plunged with the S&P500 down more than 6% intraday, posting its largest weekly decline in 5 years. This triggered a mass sell-off in "riskier" growth currencies, with AUD & NZD notable underperformers. Bond markets rallied as demand for safe assets surged.
As of the start of trading this week, Fed rate cut expectations have jumped to -120bp for the year and markets attach a 50% chance to a rate cut at their next meeting in early May, from -5bp 1 week ago.
Fed Chair Powell was blunt on Friday, saying tariffs were "significantly larger than expected" and that they will produce "higher inflation and slower growth". While concluding his comments noting that the Fed is always attentive to both sides of their mandate - maximum employment and low and predictable inflation - he overall betrayed more of a lean towards prioritising price stability. More commentary was devoted to the Fed's obligation to make sure one-time price increases do not become an ongoing problem.
US non-farm payrolls showed 209k jobs added in March (vs expectations at 135k), a very healthy number, but one that few paid much attention to given the overriding focus on the more substantive Liberation Day tariff shock.
Soft surveys continue to break lower. The March manufacturing and services ISM surveys showed weakening expectations amongst businesses, with new orders and employment notable drags in both reports. Importantly, both surveys were compiled before Liberation Day tariffs.
The RBA left rates on hold at 4.1%, in line with expectations. Governor Bullock noted the usual boiler plate commentary that the labour market remains tight, and that upcoming jobs data and Q1 CPI (due 30 April) will inform their May meeting decision. Tariff uncertainty of course loomed large. But markets move quickly and since then rates markets have embraced a bigger RBA rate cycle. -37bp in RBA rate cut risk is now priced for their May meeting, meaning markets give a 50-50 chance for a more outsized 50bp rate reduction. Rates market price in 112bp in rate cuts for the rest of 2025, a sharp repricing since Monday last week when pricing sat closer to -70bp. Rates market pricing into mid-2026 puts RBA terminal in the 2.85% area.
Feb Aus Retail sales data printed weaker at 0.2% (vs exp 0.3%) revealing sluggish spending, however potential stimulatory effects of the RBA's February rate cut remain to be seen.
AUD was touched up on the crosses, AUD/EUR fell almost 4% in trading Friday, to 0.5512, amid the outsized derisking and unwinding across global markets. EUR/USD is now something of a safe haven, helped greatly by Europe's dramatic EUR1trn fiscal pivot a few weeks ago. EU President Von Der Leyden said tariff countermeasures are being prepared, meanwhile PM Albanese stated that there would be no retaliation from Australia.
AUD/JPY also underperformed, falling 4.1% to 88.22 Friday - its lowest level since 2023. Aggressive AUD/JPY downside is always a feature when markets are rapidly unwinding risk.
AUD/NZD fell 1.2% too, closing just below 1.08 on Friday as the risks to global growth and China's economy in addition to the sizable declines in industrial metal prices weighed disproportionately on AUD.
Gold established new highs at $3167/oz on Thursday as fears around reciprocal tariffs reached a boiling point for haven demand. But the weight of deleveraging across global markets was too much for even gold on Friday, with bullion falling almost 4% intraday, to $3015/oz from $3136/oz. The sell-off was most likely triggered by investors taking profit on long positions amid the meltdown in equities.
Copper followed in a similar move to gold, treading lower through Friday's session, with the Comex May contract plummeting almost 5.4% at the start of today's Comex session before regaining stability around $440/lb.
Iron ore was modestly lower with the focus on the recent weak housing data in China and Trump’s tariff announcements. The May SGX contract is down 55c at $102.45.
Moving to the week ahead calendars, US March CPI is the main release. A less than benign number could challenge dovish Fed rate pricing and might be a catalyst for more volatility. The consensus is for a 0.3% m/m increase in the core CPI.
The RBNZ meets too, the first central bank meeting to take place since Liberation Day tariffs, which may give some clues on the early read among peer central banks. The RBNZ is expected to deliver a 25bp cut.
Domestically, Australia's April Westpac Consumer Confidence & March NAB Business Survey will shed light on expectations around cost of living pressures and global tariff risks.
But most importantly, markets are hostage to tariff headlines right now - retaliation from Europe, the potential for offsetting fiscal and monetary policy relief from China, and critically, gauging Trump's resolve around sticking with severe tariffs. As of Monday afternoon President Trump, Treasury Secretary Bessent and Commerce Secretary Lutnick remain defiant.
Tuesday
- Australia Apr Westpac Consumer Confidence & Mar NAB Business Survey
Wednesday
- RBNZ Official Cash Rate
- US FOMC minutes from March 19 Policy Meeting
Thursday
- Australia Apr Consumer Inflation Expectations
- China Mar CPI & PPI
- Japan Mar PPI
- RBA Governor Bullock to speak at a Market News International event
Friday
- US Mar PPI & Apr University of Michigan Consumer Sentiment (Prelim)
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