Analyzing Market Movements: Tariffs, Jobs Reports, and Interest Rate Speculation

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he dollar held tight ranges against its G10 peers, safe havens like the Japanese yen and the Swiss franc suffered, and investors continued to hunt for returns in more exotic locales. Latin American and Pacific Rim currencies were the main beneficiaries, with the Brazilian real and the Korean won leading the way, buoyed by positive domestic developments. In the end, the week’s events (the ECB June meeting and the US payrolls reports) were not enough to move the needle much, and failed to significantly change the basic narrative: the ECB will not cut rates much below 2%, and the US economy remains resilient to the tariff chaos. Now that the worst fears about the impact on US growth and employment from Trump’s tariff seems to have dissipated somewhat, we now turn to the inflationary side. This week’s May US inflation report on Wednesday is critical. Economists are expecting a modest rebound in the core sub index on the back of import price hikes, but uncertainty is very high given the lack of historical precedent. Beyond the US, we have a busy week in the UK, with labour market data on Tuesday and Wednesday, booexacrlkended by April monthly GDP on Thursday. A spate of speeches by ECB officials should add light to the apparent hawkish turn of the institution at its June meeting.

AUD

The ongoing de-escalation in US-China trade tensions should be bullish for the Australian dollar. However, AUD lagged behind most of its major peers last week, as rising tensions in the Middle East caused market participants to flee riskier investments, while investors continued to fret over China’s economy given that the tariffs remain far higher than expected post-election. This ensured that the Aussie currency was one of the few in the G10 to end last week lower against the US dollar. Focus this week will remain on tensions in the Middle East and progress in trade negotiations. This Thursday’s labour report for May will also be highly important for AUD, as it could determine whether or not we see another interest rate cut from the RBA at its next meeting in July. Thus far, the jobs market has held up very well, characterised by solid job creation and steady unemployment. Signs of a deterioration here will be closely scrutinised by officials, and a soft report this week could cause markets to begin fully pricing in a July cut.

NZD

A highly intense geopolitical week led to volatile trading sessions for high-beta currencies like the New Zealand dollar. Initially, news of a trade deal between the US and China boosted antipodean currencies, which benefit from strong Asian demand. However, this upward trend was briefly disrupted when reports of Middle East attacks triggered a risk-off sentiment. Nevertheless, we continue to believe that the NZD is well-supported by the RBNZ’s cautious approach towards its monetary policy. Once geopolitical risks subside and risk appetite returns, the NZD could reclaim the spotlight. On the domestic front, last week offered little in terms of significant developments, but the first-quarter GDP growth data, due this Wednesday, will shift focus. Consensus points to a modest 0.7% expansion. Despite starting from a low base, this figure would strengthen the case for the RBNZ holding rates steady at the July meeting. In such a scenario, the NZD could find some support, though geopolitical developments will likely continue to be FX’s main driver.

USD

The long awaited May inflation report out of the US showed no impact at all from Trump’s tariffs, and was in fact much lower than anyone had expected. The core subindex increased just 0.1%, vs expectations of 0.3%, a huge miss of a rarely seen size. Weekly jobless claims continue to inch upwards, contradicting the April payroll report. Evidence is still very mixed but on balance it seems to confirm that demand is slowing down, the labor market is loosening, and corporations are absorbing tariff costs rather than raising prices and risking market share. The June Federal Reserve meeting this week will be interesting primarily to gauge the extent to which this data has impacted the FOMCs views on inflation,growth and potential interest rate cuts, of which two full ones are priced for this year by markets.

CNY

The US-China ‘trade truce’ announced after last week’s London negotiations offered mild optimism for markets. Still, for the most part, it appears to put the two countries back to square one. Tariffs persist, with Trump pointing to a 55% levy on China. Many details remain unclear, unresolved issues linger, and the path forward looks set to be long and winding. For now, focus shifts to domestic developments, with this week’s data release expected to shed more light on China’s economic performance amid ongoing trade tensions. Last week’s trade figures revealed slowing exports in May, with shipments to the US dropping by a massive 34.5% year-on-year in value terms.