The Australian Dollar Unravels as Trump’s Tariffs Go For The Chokehold

View related analysis:

• AUD/USD Forecast: AU GDP, US PMIs and NFP on tap
• USD/JPY forecast: Bullish exposure to yen hits record high - COT report
• USD Soars, EUR/USD, AUD/USD, slide on ‘Pricey’ GDP Figures Ahead of PCE
• US dollar, yields dragged lower with consumer confidence, reviving rate-cut bets

Trump’s tariffs continued to dominate news flows on Monday, and the President not messing around. He confirmed that the 25% tariffs on Mexico and Canada will go ahead on Tuesday, and implied there was no room for further negotiation by saying “they’re all set”. He also reiterated his plans to double China’s tariffs from 10% to 20%.

Tariff concerns also continued to show up in US economic data, with higher prices in the ISM manufacturing report showing companies are already hiking prices in anticipation of the move. ISM manufacturing pointed towards stagnant growth with a mildly-positive print of 50.3. New orders contracted at 48.6 and employment contracted at a faster pace of 47.6. Given the weak consumer sentiment reports and surprise contraction in the S&P global services PMI report last week, investors are right to be on edge as these data points could suggest the Fed could be moving towards a hard landing after all. In turn, that could prompt the Fed to cut rate much sooner and more aggressively than investors are currently pricing in. Fed fund futures are implying just a 53.6% chance of a 25bp cut in June, with diminishing odds below 50% through to the rest of the year.

Trump tariffs weigh on Wall Street sentiment

The S&P 500 kicked the week off with its worst day of the year (and a bearish engulfing day, no less), with prices now considering a break beneath 5800. It was also the most volatile day of the year for Wall Street indices with the high-to-low range of the S&P 500 spanning 3% and the Nasdaq’s spanning 4%.

The Canadian dollar was the weakest major, which allowed USD/CAD to rise for a third day and reclaimed 1.45 – despite the US dollar being the second-weakest major currency on Monday. The US dollar index snapped a 3-day winning and erased all of Thursday and Friday’s gains, closing the day beneath 105. USD/JPY formed a bearish engulfing day, and is easily within a day’s rage of testing the December low.

Australian dollar technical analysis

While there are currently no tariffs directly aimed at Australia, they in the crosshairs of the spat between the US and China. Anything that weakens China’s economy is likely to be felt by Australia, which means AUD traders have taken note of China’s potential 20% tariffs and sold the Aussie accordingly.

• AUD/USD snapped a 6-day losing streak with an inverted hammer, although a break back beneath 62c seems viable in the current environment
• EUR/AUD rallied for a seventh day, broke above its December high and reached a 7-month high
• GBP/AUD also rose for a seventh day and broke above its December high to chalk up a near 4-year high
• AUD/JPY continued its descent to a 7-month low and is now considering a break beneath the 93 handle
• AUD/CHF is considering a break of its December low, as the Swiss franc also sucks in safe-haven flows
• The weak sentiment also weighed on ASX 200 futures (SPI 200) overnight which are seriously considering a break beneath trend support.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

1. Open an account, or log in if you’re already a customer 
   
   • Open an account in the UK
   • Open an account in Australia
   • Open an account in Singapore
   
   
2. Search for the market you want to trade in our award-winning platform 
3. Choose your position and size, and your stop and limit levels 
4. Place the trade