Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Tariff delay boosts markets
The AUD/USD rebounded sharply from five-year lows overnight on news the US’s new trade tariff policies will be delayed.
The Australian dollar initially followed other trade-exposed currencies and collapsed in early Monday trading after US president Donald Trump announced new tariffs on Canada, Mexico and China over the weekend.
The AUD/USD fell as much as 2.1% on the news while the USD/CAD gained 1.7% and USD/MXN gained 3.0%.
However, all currencies regained most of those losses after Trump said he would delay the tariffs for one month after a promise that Mexico would deploy 10,000 soldiers along the US-Mexican border. Later in the day, tariffs on Canada were also paused.
After a roller-coaster ride, the AUD/USD ended 0.3% higher.
In Asia, other markets regained losses, with the NZD/USD flat and USD/SGD up 0.1%. The USD/CNH ended down 0.2% after touching more than two-year high yesterday morning.
ISM services ease as USD bullish momentum builds
The US dollar index eased on the positive trade news with the USD index turning from key resistance at two-year highs at 110.00.
In terms of key releases this week, apart from upcoming job numbers, this Thursday will see the announcement of ISM services.
We anticipate that ISM services will slightly decline from 54.0 in January to 52.9. The month saw a drop in all regional and national Fed services surveys.
In December, the ISM prices index had a significant spike, reaching its highest point since February 2023. This could stay high in the foreseeable future because of inflationary concerns brought on by tariffs.
Due to US exceptionalism and tariff concerns, we anticipate that the dollar will continue to rise in the first quarter. The dollar has now increased by almost 6% in the previous three months due to US data, the Fed, and the next administration’s potential for dollar-friendly US policies. We remain positive on the US dollar.
German industrial slump adds to EUR pressure
Today, Germany’s industrial production will be revealed.
In accordance with dismal factory surveys and December’s drop in auto production, we forecast German industrial output fell by 0.5% month over month in December.
Technically speaking, the EUR/USD negative trend momentum remains firmly in gear following a strong US labor data release and the early-January rejection of important short-term resistance around the 1.045 mid-December tactical breakdown level.
The 1.0202 September 2022 61.8% Fibonacci retracement level, which was initially challenged at the beginning of the year, is being revisited by the pair.
EUR/SGD price momentum is similarly on the downtrend, with 50-day EMA 1.4119 acting as key resistance.
Aussie bounces from April 2020 lows
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 3 – 9 February
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
