The Australian dollar builds a base above 0.7000
The Australian dollar was in a corrective phase for a good part of last week, culminating in a low of 0.7015 on Friday, even with a decent enough local Jan jobs print to hand. The US Supreme Court's ruling against US tariffs has changed the calculus and saw AUD/USD trade back towards 0.7100. The week ahead is headlined by Jan Monthly CPI figures, key building blocks for Q4 GDP - CAPEX and construction work done - and Governor Bullock's speaks at a fireside event in Melbourne. The clock is running down on Iran and geopolitics will dominate the headlines too.
The Australian dollar builds a base above 0.7000
The Australian dollar was in a corrective phase for a good part of last week, culminating in a low of 0.7015 on Friday, even with a decent enough local Jan jobs print to hand. The US Supreme Court's ruling against US tariffs has changed the calculus and saw AUD/USD trade back towards 0.7100. The week ahead is headlined by Jan Monthly CPI figures, key building blocks for Q4 GDP - CAPEX and construction work done - and Governor Bullock's speaks at a fireside event in Melbourne. The clock is running down on Iran and geopolitics will dominate the headlines too.
US Supreme Court Deals A Blow to Trump’s Economic Agenda
It was another one of those weeks that started out promising enough for the USD. US data by-and-large was meeting if not beating expectations, and the FOMC minutes were unexpectedly on the hawkish side. The key message was that the vast majority of participants judged that downside labour market risks have moderated and that several members supported adopting a two-sided approach on signalling the outlook for fed funds. Markets pared back Fed rate cut expectations with -56bp of cuts priced for end-2026 ( from -63bp priced last Monday).
For much of last week against this backdrop, AUD/USD was repeatedly capped into 0.7085/95 and it carved out a succession of lower intraday lows - culminating in a Friday dip to 0.7015. EUR/USD traded down to 3-week lows of 1.1742. To cap it off, we were increasingly concerned about the imminent risk of a US strike on Iran. Prediction markets were pricing in more than a 50% chance of a US strike by 31 March and this was also adding a little bit of geopolitical safe haven premium to the dollar.
But in a decision that surprised nobody, the US Supreme Court struck down a large part of Trump's tariff agenda on Friday night. In a 6-3 judgement, the Justices ruled that the White House overstepped their authority invoking the International Economic Emergency Powers Act (IEEPA). This was a stunning rebuke for a President that has so far wielded near unchecked executive authority.
Not long after the announcement, the President invoked alternative tariff statutes and announced initially a 10% baseline tariff for 150 days, but then raised it to 15% the next day (with some exemptions for critical minerals and beef).
This pretty much instantly derailed the USD's nascent rebound late Friday night.
Currencies started the week forging ahead further with AUD briefly taking out 0.71, while other major G10 pairs vs the USD are up 0.3-0.5%.
While the Supreme Court ruling shows that checks and balances can still contain the Trump Administration, this has also inflamed trade policy uncertainty. The deep pocketed long term investment community hardly needed any fresh excuses to sell the USD. "Value and diversification" has been the geographic asset allocation mantra among global pensions for a time. This process will be slow and gradual. Developments on the weekend are another data point that will reinforce this trend.
AUD Remains Strong On Crosses
It was ultimately another very good week for the Australian dollar on crosses. It continues to jostle with the Norwegian Krone for the number one spot.
Another pretty good local jobs number for January was certainly part of the background for AUD crosses. Full-time employment was up 50k and the unemployment rate held at 4.1%, though the detail shows participation/supply side considerations are as much a driver.
AUD/NZD set fresh 13-year+ highs at 1.1859 against this backdrop, though last week's more dovish RBNZ was clearly a key driver for the cross as well. New RBNZ Governor Breman delivered her first press conference and is clearly in no rush to start normalising policy.
AUD/EUR and AUD/JPY were also well supported through the week, though they peaked just in front of their YTD highs - just above 0.60 for AUD/EUR and just above 110.0 for AUD/JPY
Friday's mix of US data - a sticky PCE price deflator and soft advance Q4 GDP - didn't help matters much either. US Q4 GDP growth slowed to 1.4% from 4.4% in Q3, dampened by the then extended US government shutdown. Away from this, Q4 GDP still shows a fragile a two-tiered K-shaped economy, driven primarily by AI-investment and household consumption of essential services.
Gold And Silver Emerge From The Ashes
Iron ore markets have recovered from their worst levels after the sharp falls seen through the LNY holiday, however remain depressed with YTD losses tracking at 8% for SGE Iron ore.
Oil prices also remain elevated with WTI and Brent up 14% and 16% YTD respectively, as a tug-of-war on prices continues to unfold; geopolitical risks continue to periodically boost prices while OPEC supply is capping it.
The week ahead...
The week ahead is headlined by Jan Monthly CPI figures, key building blocks for Q4 GDP - CAPEX and construction work done - and Governor Bullock's speaks at a fireside chat in Melbourne.
Going into this data, markets price in a token +3bp of rate hike risk for the RBA's March meeting and about +20bp for their May meeting.
US-Iran negotiators are set to meet on Thursday in Geneva, keeping a pathway to a diplomatic solution on the table. If these efforts fail, the key question for markets is around the size and scale of any US strike. Most informed commentators believe that a US strike is likely limited and short in duration, consistent with current US force posture, historical precedent, and approaching mid-terms. But Iran's response is the big unknown.
We will also be watching NVIDIA's Q4 earnings report this week, given recent fears around AI/tech stock valuations.
Monday
- US Dec Factory Orders
- Fed Gov. Waller and ECB President Lagarde speak at NABE conference.
Tuesday
- RBA's Plumb, Head of Economic Analysis, speaks.
- US Feb Conference Board Consumer Conf.
- President Trump delivers State of Union Address (year ahead policy priorities).
- Fedspeak; Goolsbee, Cook, Bostic, Collins, Waller, Barkin.
Wednesday
- Australia Jan Monthly CPI, Q4 Construction Work Done
- RBA Gov. Bullock speaks at fireside chat in Melbourne.
- Eurozone Jan CPI (Final)
- Fedspeak; Barkin, Musalem, Schmid
Thursday
- Australia Q4 Private CAPEX
Friday
- Japan Feb Tokyo CPI
- Australia Jan Private Sector Credit
- US Jan PPI
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