Global FX Under Fire : How Tariff Tensions are Reshaping Market Trends

AUD

The Aussie dollar was hammered in the immediate aftermath of Liberation Day, as markets dumped high-risk assets, in particular those closely related to China. News of Trump’s 90-day tariff delay was disproportionately positive news for AUD relative to its major peers, and the currency managed to end the week with gains of around 3% on the greenback. Yet, we think that it will be difficult for AUD to continue in this vein. US-China tensions have not improved, quite the contrary, and the prospect of a further escalation in the trade war between the two countries will likely keep the CNY proxies under pressure. 

Volatility in the Australian currency will remain sky-high this week as headlines on the tariffs continue to hit the newswires. Domestic macroeconomic news will understandably take a back seat. Thursday’s labour market report is seen showing a modest increase in the jobless rate, but we are likely to see a sharp increase in employment following February’s surprise contraction.

NZD

Alongside other currencies closely tied to global growth, the New Zealand dollar surged following the pause on reciprocal tariffs as fears of a global economic slowdown subsided. Domestically, the Reserve Bank of New Zealand made headlines with its fifth interest rate cut, lowering the target rate to 3.5%. The bank cautioned about downside risks to growth stemming from potential trade restrictions, signaling to markets the likelihood of further rate cuts to bolster the economy. 

Despite this, the NZD remained largely unaffected by the RBNZ’s decision, as a prevailing risk-on sentiment offset the slightly dovish tone. While some relief has emerged, the uncertainty around the ongoing US-China trade war still looms large, and shifts in global growth prospects will likely influence the high-beta NZD. Inflation data for the first quarter, due on Wednesday, will be noteworthy, though tariff-related developments are expected to have a greater impact on the kiwi.

USD

It is just as well that this week is a quiet one in terms of macroeconomic releases and policy news, because these would probably have been just ignored by traders. Investors remain focused on two factors. First, the chaotic trade policies emanating from the Trump administration, where a struggle for control is increasingly evident between the relatively orthodox secretary of the Treasury Bessent, and colorful characters whose understanding of what is going on is more and more questionable, like Navarro or Luttwick. WHile the damage to the real economy won’t be apparent for a while, consumer surveys already show a dramatic worsening of the outlook and a record jump in inflation expectations.The outlook is grim, and the main hope is that further market volatility will convince Trump to listen to Bessent and sideline his more questionable advisors.

CNY

The yuan underperformed most of its peers last week although it ended almost unchanged against the greenback, after recovering in the second half of the week. Tariff bonanza continued with US levies on China rising to at least 145% on Thursday before being (temporarily?) reduced due to exemption on some electronic products announced over the weekend. Meanwhile on Friday, China announced an increase in tariffs on the US to 125%. The country also signalled it will not raise them further and dubbed potential additional US tariff increases ‘a joke’ as it continues to urge the US to drop its tariff strategy. 

The topic of trade war between the world’s two largest economies remains key for investors and the yuan should continue to take cues from US-China headlines. On the topic of tariffs, investors will eye this week’s data including first-quarter GDP print (Wednesday) also from that angle. Given the potentially significant (albeit difficult to quantify) hit to growth in the near future, markets will also be on the lookout for signs that more economic support in China is coming. 

JPY

The apparent loss of confidence in US assets as reliable safe-havens has left the door wide open for upside in the yen, which has outperformed almost every currency globally since 2nd April, with the sole exception of the Swiss franc. The move in the USD/JPY exchange rate, which last week sank below the 144 level, has been further exacerbated by market bets in favour of a widening in US-Japan rate differentials. Last week’s PPI data beat estimates and we would not be surprised to see a strong reading in Thursday’s March CPI report. 

Yet, with global growth concerns elevated, the Bank of Japan will likely adopt a cautious approach for now. News out of US-Japan trade negotiations will take centre stage in the next few weeks. Reports suggest that Japan could be priorities in trade talks, and any positive news here could provide some further support for the yen in the coming days.