Tariff Escalation Stokes Risk-Off Sentiment
AUD
The Aussie Dollar ended its three days of consecutive gains on Friday, as investor sentiment turned cautious following a fresh wave of global tariff tensions sparked by US President Trump. He announced a 35% tariff on Canadian imports starting August 1, citing their retaliatory tariffs. He also signaled plans to impose blanket tariffs of 15% to 20% on most other trade partners - a further blow to Australia, which relies heavily on free trade for commodity exports. Asian equities finished the week mixed, with the Hang Seng at +0.5%, the Shenzhen +0.1% and the Nikkei -0.2%. Locally the ASX finished the day in the -0.1%, with real estate and technology sectors leading losses at -1.5% and -1%. A quiet week ahead for local data, with the highlight being Thursday's labour market report for June. Overall, Australia has created an average of 18.3k jobs a month in the first five months of this year compared with an average of 32.1k in the same period a year ago. The challenge for the RBA is that the participation rate continues to expand (average 67% in the first five months of this year). On the policy front, the AUD has been supported by the Reserve Bank of Australia's surprise interest rate hold at 3.85% last week. Rate cut expectations for August are firming, with markets now pricing in an 89% chance of a 25bps cut, though much hinges on Q2 inflation data due July 30.
USD
Souring risk sentiment sees AUDUSD fall 0.4% from the 34-week highs of 0.6593 reached on Friday, with the pair kicking off the week at 0.6574. This comes after US President Trump announced tariffs on Canada and Brazil, as well as signaling plans to impose blanket tariffs of 15% to 20% on most other trade partners. These tariff concerns saw Wall St. trade lower to round out last week with the Dow Jones closing -0.6%, the S&P 500 -0.5%, and the Nasdaq -0.2%. No US data set for release over the next 24h. Tomorrow evening, well see US consumer inflation data. The headline yearly figure is expected at 2.6% (up from 2.4% in May). The Core monthly measure (which excludes volatile food and energy items) is expected at 0.3%. Firming consumer prices are expected despite the economy looking to be softening, with industrial output falling for the fourth month in the first six. If inflation does increase, as expected, it may keep the Federal Reserve's 'stand pat' decision unanimous amid threats of a higher universal tariff.
EUR
AUDEUR traded sideways since Friday, keeping a 0.4% range, opening at 0.5629. The DAX ended Friday -0.8% and the CAC was -0.9%. Eurogroup meetings are being held today. A great deal of low-tier Eurozone data this week. Tomorrow evening, we'll see German ZEW Economic Sentiment.
GBP
AUDGBP touched 9-week highs of 0.4878 on Saturday morning, having spent little time there in early May, then early April before that. The pair remain elevated at 0.4872 this morning. The move was largely driven by weaker-than-expected GDP. The latest figures show the UK contracted 0.1% month-on-month in May, with weakness concentrated in production output. The FTSE ended Friday -0.4%. Tomorrow morning will hold UK Retail Sales data. On Wednesday morning, Bank of England Governor Bailey will be speaking. UK CPI is set for release on Wednesday afternoon, expected at 3.4% year-on-year, in line with the previous reading.
NZD
AUDNZD starts the week at the highest point since the beginning of April, opening at 1.0952. This morning, the BusinessNZ Services Index printed at 47.3, with the services sector continuing to contract in June, albeit at a slower pace. The RBNZ Statement of Intent is set for a tentative release on Wednesday. It provides insights into the central bank's strategic priorities for the next financial year.