Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie, kiwi plunge as trade risks grow
The Australian dollar neared five-year lows while the Chinese yuan dropped to the lowest level, since October 2022 after US president Donald Trump announced new tariffs on Canada, Mexico and China over the weekend.
Financial markets had been on edge following Trump’s inauguration as they waited for detail on tariffs. Over the weekend, Trump announced a 25% tariff on Mexican goods, the same for Canadian products except energy (liable to a 10% tariff), and a further 10% tariff on Chinese goods in addition to existing tariffs.
Both Canada and Mexico both announced retaliatory tariffs. China was more restrained, announcing “dissatisfaction” and said it would consider its response.
The prospect of a tit-for-tat trade war saw trade exposed FX hit the hardest.
The AUD/USD fell 0.8% on Monday morning in response to the news and neared levels not seen since the March 2020 pandemic sell-off. The kiwi was similarly hit with the NZD/USD down 0.7%.
Beijing weighs trade response
The impact was reflected across Asia this morning with the USD/SGD jumping 1.1% and USD/CNH gaining 0.5% to hit the highest level since October 2022.
Today, the Chinese Caixin PMI will be revealed. Because of the front-loading of exports brought on by possible tariff hikes, we anticipate that the Caixin manufacturing PMI, which polls more SMEs and exporters in China’s eastern coastline area, will remain constant at 50.5 in January.
The degree of FX adjustment by the People’s Bank of China and the magnitude of the fiscal stimulus are the two main areas of concern in 2025 due to the possibility of increased tariffs and US rates.
Our baseline is that the risk is biased to the upside, but the policy draws a line at 7.50.
We look for uptrend in the pair however, driven by Trump’s tariff newsflow.
Bank of England, US jobs in focus
FX markets will be driven by central bank decision this week with policy announcement due from the Bank of England.
The Bank of England decision on Thursday will be closely monitored as policymakers weigh recent inflation prints against signs of economic weakness.
Asian currencies will take direction from regional inflation readings with South Korea CPI due Wednesday, Philippines CPI Wednesday and Taiwan CPI Friday.
In the US, employment data remains in focus with ADP employment Thursday and nonfarm payrolls on Friday night.
Aussie plunges on tariff news
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.
