All out trade war sends AUD below US$0.62
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Daily Currency Update
The Australian dollar fell through trade on Tuesday after President Trump confirmed the 25% import tariff on Canada and Mexico and the 10% lift in China tariffs would take effect from Midnight on the 4th of March in the US, suggesting time had run out on negotiations. While not unexpected the headline triggered a broad market risk off shift with equity markets extending losses and propping up the short end of the yield curve as concerns for US growth escalated. With the USD on the back foot, Canada and China issued retaliatory tariffs with China targeting US agriculture increasing taxes on soybeans, pork, beef and grain by 10-15%. China also announced non-tariff measures in response, halting the purchase of US timber and adding 25 new US companies to its export control and unreliable entity lists. With an all-out trade war now a foot the AUD slid through US$0.62 marking lows below US$0.6190 before finding support. While headlines through the last 24 hours have been overwhelmingly AUD negative price action against the USD has been relatively muted with losses offset by broader USD weakness. Instead, the action has been contained to key crosses with the AUD probing a break below 0.59 against the euro, plunging below 0.49 against the GBP while sliding toward 91.90 against the yen.Our attention now turns to domestic Q4 GDP data, USD ADP employment data and ISM services numbers. We are keenly attuned to signals in US data that suggest fallout from the Trump trade war.
Key Movers
The US dollar weakened overnight as markets reacted to implementing a 25% tariff on Canada and Mexico and a 10% increase in taxes imposed on China exports to the US. Equity markets extended losses as a risk off mood enveloped markets. Analysts are concerned the tariffs will hamper the US growth outlook and damage the labour market, forcing the Fed to cut rates as it focuses primarily on unemployment over inflation. Three full rate cuts are now priced in through year-end and the 2-year rate has fallen below 2%. With risk off and the USD on the back foot, the CHF and JPY benefited from haven plays while the euro enjoyed extended gains as the promise of increased defence spending has acted as a positive force fueling currency moves. As expected the Canadian dollar and Mexican peso opened lower this morning yet in the circumstances we would have ordinarily expected larger swings. There has been only a modest negative reaction to tariffs thus far. There is still an overwhelming sense that the tariffs will not stick and tensions will ease through the weeks and months ahead. Such sentiment leaves ample scope for volatility through the coming weeks as we move toward April and the US trade department's final review of trading relationships and a broader announcement on US reciprocal tariffs.Expected Ranges
- AUD/USD: 0.6100 - 0.6250 ▼
- AUD/EUR: 0.5850 - 0.5980 ▼
- GBP/AUD: 2.0380 - 2.0600 ▲
- AUD/NZD: 1.1020 - 1.1120 ▼
- AUD/CAD: 0.8950 - 0.9050 ▲