AUD extends recovery as USD exceptionalism dies
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Daily Currency Update
The Australian dollar's recovery continued through trade on Monday, extending last week's post-Liberation Day rebound as markets continue to move away from US assets. The AUD outperformed, punching back above US$0.63 to mark session highs above US$0.6340. Further tariff uncertainties helped fuel the recovery as markets focused on the implications for US economic growth and consumer sentiment.Overnight, President Trump announced relief would be afforded to the auto sector, while at the same time confirmed tech companies would not be afforded permanent immunity from all tariffs. Instead, announcing a new plan for the sector would be developed in the coming weeks. The consistent backtracking has only served to heighten uncertainty, creating an environment where businesses are withdrawing investment and consumers are pairing activity for fear of a looming recession.
With markets divesting of US assets and selling down USD positions, our focus remains on the evolving tariff landscape while UK Labour Data and Canadian CPI numbers headline the macroeconomic docket.
Key Movers
Another day and another USD retracement as markets continue to divest of USD and US assets. Further tariff uncertainty only served to highlight the haphazard and chaotic nature of their implementation, elevating recession fears. President Trump announced plans to afford the auto sector relief while countering yesterday's promise to offer respite to tech companies, affirming immunity from reciprocal tariffs will be temporary as more industry-specific policies are established.The consistent backtracking and ability of certain companies to seemingly bend the President's ear and elicit tariff favours have fostered an environment wherein businesses are reluctant to invest, and consumer sentiment wavers. Markets are now pricing in multiple rate cuts before year-end with expectations guided by the impact of tariffs as two scenarios emerge. A large tariff agenda will propel the economy into a deep and extended recession, which will require multiple rate cuts. A paring in the tariff program could afford the Fed scope to adopt a more measured approach to rebuilding consumer confidence and activity.
Equities failed to retain early gains as markets sought alternatives to US assets. The US DXY index fell 0.4%, finding support just above Friday’s low of 99.00. While the euro and CAD tracked sideways, the AUD, NZD, GBP and JPY all enjoyed gains. We expect the USD will remain under pressure as tariff uncertainty peaks and markets continue to rotate away from the USD.
Expected Ranges
- AUD/USD: 0.6200 - 0.6400 ▲
- AUD/EUR: 0.5400 - 0.5600 ▲
- GBP/AUD: 2.0700 - 2.1000 ▲
- AUD/NZD: 1.0700 - 1.0900 ▼
- AUD/CAD: 0.8550 - 0.8820 ▲