Aussie on the front foot...and still within ranges
AUD/USD starts the week on the front foot, boosted by dovish Fedspeak and weekend headlines including OPEC production cuts and a doubling of US tariffs on steel and aluminium to 50%. Though, AUD/USD has yet to break new ground, with the pair still spinning its wheels mostly between 0.6400-0.6500. The week ahead includes the influential ISM business surveys and non-farm payrolls, alongside central bank meetings in Canada and Europe. The minutes for the RBA's May meeting (Tue) and Q1 GDP (Wed) headline Australia's calendars.
Aussie on the front foot...and still within ranges
AUD/USD starts the week on the front foot, boosted by dovish Fedspeak and weekend headlines including OPEC production cuts and a doubling of US tariffs on steel and aluminium to 50%. Though, AUD/USD has yet to break new ground, with the pair still spinning its wheels between 0.6400-0.6500. The week ahead includes the influential ISM business surveys, JOLTS job openings and non-farm payrolls, alongside central bank meetings in Canada and Europe. The minutes for the RBA's May meeting (Tue) and Q1 GDP (Wed) headline Australia's calendars.
Tariff headlines continue to produce whipsaw for markets. The US Court of International Trade invalidated Trump's "Liberation Day" tariffs last week, three judges ruling that the International Emergency Economic Powers Act (IEEPA) does not give the Administration unilateral authority to impose these import taxes. But a federal appeals court moved to temporarily reinstate them the next day. The USD rose across the board on the initial trade court ruling and promptly fell the next day on the Administration's successful appeal.
The widespread view in markets is that judicial intervention introduces fresh complexity and uncertainty. At the same time tariffs are the central pillar of Trump's economic agenda and they are here to stay, one way or another. There are a range of alternative statutes the Administration could invoke to circumnavigate the courts, albeit ones that slow the process down via investigations and public comment periods.
Tensions with China are on the rise again too. President Trump complained late last week that China has supposedly violated the terms of the "Geneva truce agreement". Treasury Secretary Bessent chimed in noting that negotiations with China are a "bit stalled".
A couple days earlier Secretary of State Rubio announced that some Chinese students studying in "critical fields" and those with connections to China's Communist Party would have their visas revoked. In 2023-2024 there were 270,000 international students from China, making up about a quarter of all foreign students in the US.
China has vowed a firm response.
President Trump also lifted tariffs on steel and aluminium over the weekend, to 50% from 25% effective June 4, the move seen tied to Nippon Steel Corp's purchase of US Steel.
Altogether then after a period of tariff de-escalation, the path forward looks more complex and uncertain and tensions with China are rising again.
Erratic tariff policies instilled mistrust and created the first wave of "sell America" trades. The "Big Beautiful Bill" threatens to create another wave. There's overarching questions about fiscal sustainability, then there's the detail, notably a 20% tax on foreign investors' passive US income, which threatens to discourage investment in US assets. The Bill has passed the House, and is now working its way through Senate corridors.
Domestically, Australia's monthly CPI gauge printed slightly stronger at 2.4% for April (vs exp 2.3%). Meanwhile, April retail sales surprised to the downside, declining by -0.1% (vs exp +0.3%). AUD briefly traded lower following the news, dipping just below 0.6410.
The RBNZ delivered a 25bp rate cut, in line with expectations, however the rhetoric from Governor Hawkseby was less dovish, commenting that rates were close to neutral. In line with this, Westpac Economics has pushed back the timing of the next RBNZ rate cut to August, from July.
Aside from a rebound in consumer sentiment, US data was lacklustre with slightly higher jobless claims, and downward revisions to consumer spending in Q1 GDP adding to angst. April PCE inflation was benign.
AUD/NZD has fallen 0.47% week-on-week under 1.08, still carrying some residual heaviness from a more hawkish RBNZ last week which signalled that NZ rates "are close to neutral". Otherwise, AUD/EUR is down 0.25% trading near 0.5680 and AUD/JPY remained flat for the week, holding within the 92-94 area.
US equities jumped higher on the news of the US Trade Court's ruling against reciprocal tariffs, however the appeal filed later by the Administration saw these gains pared back slightly, with the S&P500 gaining 1.15% over the last 5 days.
The doubling of tariffs on steel and aluminium hit metals with copper down 0.7% to $9,498 and aluminium down 0.27% to $2,444. Crude closed at 3-week lows on Friday, while Iron ore softened into the long weekend in China with markets closed today. Gold closed 0.9% lower on Friday near $3288/oz following Trump's accusations against China.
In the week ahead, we will receive global PMIs. US May payrolls and April JOLTS job openings will shed insight about the impact of US government hiring freezes and recent tariff chaos. Consensus expects US payrolls to cool to +125k, from 177k in April.
The consensus expects US unemployment to be steady at 4.2%, but this could well be the surprise factor for markets. A 4.3% print would be the highest in 3 1/2 years and would likely open a path to fresh USD downside. Equally, a lower unemployment rate, while considered a lot less likely, would feed the narrative around ongoing resilience in the hard data.
The RBA meeting minutes for May should unpack more details about the Bank's sudden dovish shift. Recall Gov. Bullock revealed that the policy board discussed a deeper 50bp rate cut. RBA Assistant Governor, Sarah Hunter is also due to speak in Brisbane later this week.
Aussie Q1 GDP (market f/c: 0.4%, Westpac f/c: 0.4%) will be key domestically, with Westpac Economics expecting that the moderation in consumption due to weather-related disruptions should be partially offset by the filling of orders ahead of Liberation Day tariffs.
The ECB and Bank of Canada are also due to meet, with markets expecting both to deliver a 25bp rate cut.
Monday
- UK May S&P Global Manufacturing PMI (Final)
- US May ISM Manufacturing
Tuesday
- China May Caixin Manufacturing PMI
- Australia Q1 Current Account Balance, Company Operating Profits, Inventories, Net Exports contribution to GDP
- RBA May Meeting Minutes, Assistant Governor Sarah Hunter speaks
- Eurozone May CPI (Prelim.)
- US Apr JOLTS Job Openings
Wednesday
- Australia Q1 GDP, May S&P Global PMI (Final)
- Eurozone May HCOB Services PMI (Final)
- Bank of Canada Monetary Policy Meeting
Thursday
- Australia Apr Trade Balance, Household Spending
- China Caixin Services PMI
- ECB Monetary Policy Meeting
- US Apr Trade Balance
Friday
- US May Non-farm Payrolls, unemployment, earnings
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