Aussie storms back above 0.63
AUD staged an solid rebound during another hectic week of tariff escalation and de-escalation. The pair starts the week above 0.6300, marking a complete reversal of its steep post-Liberation Day tumble. Volatility is set to remain elevated this holiday shortened week. March labour force figures dominate the local calendar. Offshore we will be watching China March data and Q1 GDP, the ECB and US retail sales. Expect another big week of tariff headlines. We will also be keeping a close eye on the interaction of US Treasuries and the USD. At one point US 10yr yields rose a breath-taking 70bp+ in the week, while the USD index fell 3.5%, confounding many observers.
Aussie storms back above 0.63
AUD/USD staged an solid rebound through another hectic week of tariff escalation and de-escalation. The pair starts the week above 0.6300, marking a complete reversal of its steep post-Liberation Day tumble down to 0.5915.
Volatility is set to remain elevated in this holiday shortened week. March labour force figures dominate the local calendar. Offshore we will be watching China March activity data and Q1 GDP, the ECB and US retail sales. Expect another big week of tariff headlines too. We will also be keeping a close eye on the interaction of US Treasuries and the USD. At one point US 10 year yields had risen a breath-taking 70bp+ in the week, while the DXY USD index fell 3.5%, confounding many observers. While tariff concessions and inflation risks are a big part of the rise in yields, the sell-off in US rates also raises important questions about the safe-haven pre-eminence of Treasuries.
Following China's retaliation on the US post-Liberation day, a standoff was set in motion between the US and China which exchanged several rounds of retaliation before landing on 145% on China and 125% imposed on the US. All this unfolded as a 90-day reprieve was announced on non-reciprocal tariffs for all other countries. Over the weekend Trump announced yet more "concessions", exempting smartphones, computers, semi-conductors and solar cells from China tariffs. But he was quick to note that the apparent concessions on electronics is more a case of moving to another bucket - a broader semi-conductor and electronics levy is going to be applied once national security investigations into electronics supply chains are complete. In short this is not a policy pivot that dials back uncertainty.
More than 70 countries have reportedly contacted the US following reciprocal tariffs. Japanese officials are reportedly travelling to the US as early as this week to commence negotiations with US Treasury Secretary, Scott Bessent.
Equities rallied last week, the S&P500 rose 5.7%, but the sell-off in US rates garnered just as much attention. The once unquestionable reliability of US treasuries as a safe global investment vehicle is being openly questioned. President Trump acknowledged the rise US yields played a role in his decision to implement a 90-day pause on reciprocal tariffs, saying investors “were getting a little queasy.” Some commentators are speculating that foreign investors might be trimming their holdings, while another explanation is that the highly leveraged "basis trade" - selling Treasury futures and buying corresponding bonds - is at the heart of the steep rise in US yields.
AUD firmed on most crosses last week. AUD/JPY climbed last week, up 1.65% to 89.96, while AUD/EUR rose 0.8% to 0.5533. This week's ECB meeting and Aussie March employment data will shape this cross, though global risk sentiment will ultimately dictate how this pair trades.
AUD/NZD fell 0.40% last week, dipping to a YTD low just under 1.07, before recovering to around 1.0750. The RBNZ cut rates 25bp last week, as widely expected, leaving tariff escalation with China and weaker CNY fixings to drive the cross lower.
Gold set new records up at $3245/oz. Gold was initially not immune to the mass deleveraging across global markets that followed Liberation day tariffs and the ensuing escalation between the US and China. The precious metal posted a 6%+ correction through $3000/oz. But not even two weeks later, gold has vaulted back to record highs.
Spot to 3-month LME copper hit the highest level in 4yrs. Iron ore continued last week’s modest bounce. The May SGX contract is up 55c at $98.00
The consensus is looking for March local jobs to show a 40k rebound, alongside a 0.1ppt lift in unemployment to 4.2%. Recall last month's report showed an outsized decline, though this was most likely 'noise'.
China's Q1 GDP data and the monthly activity data round are expected to show earlier stimulus effects bearing fruit, along with a boost to factory activity from the front-loading of tariffs. USA March retail sales are probably flattered by the same front-loading. Business surveys in the week ahead from the NY Fed and the Philly Fed will be more indicative about the risks to the US economy.
Tuesday
- RBA March Monetary Policy Board meeting minutes
Wednesday
- Australia Mar Westpac Leading Index
- China Q1 GDP, Mar Property Prices, Retail Sales, Industrial Production
- Eurozone Mar CPI (Final)
- US Mar Retail Sales
- Fed Chair Powell speaks
Thursday
- NZ Q1 CPI
- Australia Mar Labour force data
- ECB Policy Rate Decision
Friday
- Japan Mar CPI
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