USD Slumps on Report of Narrower Trump Tariffs

AUD

Continuing the current trend, the AUD opens lower against all majors bar the USD, with the USD weakening over 1% on a report that Trump’s impending global tariffs may be softer than initially expected. The AUD was dragged by softer commodity performance and the resignation of Canada’s Prime Minister Justin Trudeau. Asian equities were mixed to start the week with the Hang Seng -0.4%, CSI 300 -0.2% and ASX 200 +0.1%. The Nikkei sold off on its first session of the year, -1.5%. China’s Caixin Services PMI printed above expectations and hit a 7-month high of 52.2 in December, although US trade fears dented optimism. The key event this week will be Aussie CPI y/y, tomorrow. The figure is expected at 2.1%, up from last month’s 2.1%.
 

USD

AUDUSD opens stronger at 0.6244, touching 3-week highs of 0.6301 overnight after the USD slumped over 1% on a news report that Donald Trump was mulling tariffs that would only be applied to ‘critical imports’, potentially a relief for countries that were expecting broader levies. Expectations that Trump would apply sweeping tariffs that would hurt countries around the world have weighed on foreign currencies (including the Euro, Chinese Yuan and Aussie Dollar) in recent months and helped send the USD soaring to over 2-year highs. Trump was quick to deny the report, although the USD still experienced significant weakness. Risk sentiment remained well supported overnight which saw the Nasdaq trading +1.1%, S&P 500 +0.5% and the Dow Jones +0.1% late in the session. In Canada, Trudeau announced he would step down as liberal party leader as soon as his replacement is chosen, while also confirming a prorogue of parliament until 24-March. Tonight, we’ll see the ISM Services PMI and JOLTS Job Openings data. FOMC Member Waller is also expected to speak. A slew of Fed policymakers are due to speak this week and are likely to reiterate recent comments that the battle to tame inflation is not yet over.
 

EUR

AUDEUR gained steady ground yesterday, reaching 0.6052 highs before falling of in the early hours to start the day a tad lower at 0.6010. The DAX and CAC closed +1.6% and +2.2%. German inflation accelerated in December (+0.4% m/m), bringing back the spectre of stagflation to the European Central Bank. Tonight’s inflation report (Eurozone CPI Flash Estimate) will be the last before the ECB’s next meeting and interest rate decision in late January. The threat of stagflation could get worse if trade tensions escalate. This is a complication for the ECB which could further widen the current divergence between hawks and doves.
 

GBP

AUDGBP opens a little lower at 0.4984, having hit 3-week highs of 0.5023 overnight before falling off. The FTSE ended yesterday +0.3%. Yesterday, the UK Final Services PMI was released near expectations at 51.1, indicating a subdued end to 2024. Weak demand and higher payroll costs led to the steepest decline in services sector employment since January 2021. Low-impact economic data tonight: Construction PMI, Halifax HPI and BRC Retail Sales Monitor.
 

NZD

AUDNZD opens flat at 1.1065, moving sideways throughout the course of yesterday in light trading conditions, briefly touching 1.1087 highs in the late evening. Another quiet week on the Kiwi data front. Tomorrow, we’ll see ANZ Commodity Prices m/m and potentially the GDT Price Index (set as a tentative release).