Aussie scales 0.64 as Fed independence is challenged
AUD/USD has finally broken up through key resistance around 0.6400, a level that has been thwarting it for months. The move came amid another round of heavy USD selling at the start of the week after President Trump ramped up his criticism of Fed Chair Powell.
Aussie scales 0.64 as Fed independence is challenged
AUD/USD has finally broken up through key resistance around 0.6400, a level that has been thwarting it for months. The move came amid another round of heavy USD selling at the start of the week after President Trump ramped up his criticism of Fed Chair Powell. Trump of course frequently blasted Chair Powell in his first term. But this time around his complaints are landing more heavily. Global investor confidence in the US is already on shaky grounds.
President Trump's attempts to undermine Fed Chair Powell and the Fed's independence saw DXY crash to another 3 year low, near 98.0, and coincides with what is now an increasingly persistent trend of concurrent weakness in equities and US fixed income. The S&P500 fell another 2.6% over the last 5 days, while US 10yr yields have risen back above 4.40%.
Accelerating USD weakness at a time when US equities and US rates are also under pressure speaks to a deeper erosion of the USD's exceptional and safe haven branding. Threats against the sanctity of Fed independence accentuate what now looks like an irreversible momentum shift away US exceptionalism, and cut to the heart of the USD's structural challenges - a loss of policy credibility and the breakdown in US governance and institutions.
But even as AUD/USD is trading at levels not seen for a few months, AUD-crosses overall remain heavy. The bulk of AUD/USD's rebound has come from generalised weakness in the USD-leg, rather than independent AUD strength. AUD/EUR is off its lowest levels in April (0.5390), but it is still languishing, around 0.5550-0.5650. AUD/JPY has rebound from its early April lows (86.05) too, but its rebound back above 90.00 is already stalling out. Meanwhile AUD/NZD is holding near 13-month lows, just below 1.0700.
AUD's relatively higher exposure to China/global uncertainty is the main factor hampering it on crosses. If China navigates the external tariff shock better than expected and/or the US and China move away from their current escalatory path, towards dialogue and a potential trade deal, a more compelling case for broad AUD outperformance will develop.
Encouragingly China's March activity data showed better than expected rebound momentum developing in the factory sector and consumer spending. China's Q1 GDP printed at 5.4% (vs exp 5.2%) aided by earlier stimulus efforts trickling through. The PBOC has no real appetite for a meaningful CNY depreciation either, beyond modest day-to-day adjustments.
But a more sustained AUD cross rebound won't develop until the aforementioned bigger China macro risks are put to rest, and that could be months away.
Australia's March employment report slightly underwhelmed expectations for bigger rebound, showing a gain of +32k vs Feb's -57k. The unemployment rate held steady though, at 4.1%.
President Trump also placed export controls on the sale of NVIDIA's H20 chips to China last week, the tech-giant reporting it will incur a USD5.5bn hit on the restrictions, triggering a -6.9% decline in its stock Wednesday.
The Bank of Canada held rates steady at 2.75% last week, while the ECB delivered a 25bp cut, in line with expectations. A further 64bp in ECB cuts are priced in for 2025.
Gold continues to soar, climbing another 5% over Easter Monday and today, briefly touching $3500.10/oz. USD weakness, Trump's criticism of the Federal Reserve and ongoing trade war tensions have left investors scrambling for safe alternatives. Bloomberg reports that ETFs for gold, ultra-short treasuries and low volatility stocks saw $18bn of inflows in April.
Iron ore was mixed over the long weekend with the May SGX contract up 90c since this time on Thursday while the 62% Mysteel index is up 75c from Friday at $99.15.
The economic data calendars do not pack as big a punch this week. Regional Fed business surveys will be watched for any further erosion in confidence and new orders, alongside further increases in prices paid/received.
Fedspeakers will garner more headlines than usual in the wake of Trump's Fed critique. The Fed's Jefferson, Harker, Kashkari, Barkin, Musalem, Waller and Kugler are all scheduled to speak this week.
There's next to nothing meaningful on the local calendar until 30 April Q4 CPI.
Central bank heads, finance ministers, and other economic leaders are in DC this week too, for the IMF/World Bank 2025 Spring meetings. Expect plenty of headlines against a more sombre global context. Tariffs are of course top of mind for delegates. But there is surely another undercurrent of concern - this Administration's ambivalence towards multilateral Bretton Woods institutions such as the IMF and the World Bank.
Tuesday
- IMF/World Bank 2025 Spring meetings all week
- Fedspeak; Jefferson, Harker, Kashkari, Barkin and Kugler.
Wednesday
- Australia Apr S&P PMI (Preliminary)
- Japan, UK, Eurozone Apr Manufacturing and Services PMIs (Preliminary)
- US Federal Reserve Beige Book
Thursday
- Germany Apr IFO Business Climate
Friday
- US Apr Michigan Consumer Sentiment Index (final)
- Japan Apr Tokyo CPI
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