AUD tumbles as realities of tariffs drive risk-off move
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Daily Currency Update
The Australian dollar fell through trade on Monday as markets reacted to the weekend's headline trade deal between the US and EU. Equities and risk assets rallied on open, and the AUD edged toward a session high just short of US$0.6585, before sentiment shifted, prompting a precipitous overnight sell-off. The initial lustre of the US-EU trade deal did not last long, and optimism surrounding the announcement faded as markets looked beyond the headline.While the agreement ensures baseline tariffs won’t exceed 15%, they will still damage growth across the continent, with GDP forecasters expecting a 0.5% dip in activity through the coming 12 months. The euro tumbled and the AUD followed suit after President Trump announced he planned to set the tariff rate at 15-20% for all those remaining trading partners that had not yet struck a deal. Having fallen back through US$0.6550, the AUD marked intraday lows below US$0.6510.
Our focus remains with the broader risk narrative and ongoing headline trade news, while US macro items dominate the macro ticket with trade data, Jolts jobs data and consumer confidence guiding direction.
Key Movers
There is plenty to digest on Tuesday, as fallout from the weekend's headline trade announcement between the US and EU continues. Markets drove the euro and risk assets higher on reports that a deal had finally been struck. Risk aversion faltered on open as fears of a punitive 30% tariff would be levied were quieted. Confirmation of a deal that would see a reciprocal 15% tariff rate applied to most goods helped the euro climb to a high just north of 1.1770. The lustre did not last long, as focus shifted to the actual implications of an elevated tariff environment.Even at 15%, growth across Europe will slow, and while European leaders were relieved a deal had finally been reached, there was little fanfare. German Chancellor Merz said tariffs would cause “considerable damage” to the German economy, while Spain’s Prime Minister Pedro Sanchez said he supported the deal “without enthusiasm". The euro tumbled through overnight trade, down 1.3% to 1.1590, while other European currencies were dragged lower, and the USD DXY index rallied.
The Canadian dollar was one of the only majors to offer resistance to USD gains. An uptick in oil prices and the CAD’s ability to absorb larger USD moves helped it outperform on the day.
Our focus now turns to US trade, Jobs and consumer sentiment data.
Expected Ranges
- AUD/USD: 0.6480 - 0.6630 ▼
- AUD/EUR: 0.5580 - 0.5680 ▲
- GBP/AUD: 2.0400 - 2.0700 ▲
- AUD/NZD: 1.0880 - 1.0980 ▼
- AUD/CAD: 0.8880 - 0.9020 ▲