Market mayhem as investors respond to US tariff agenda

AUD – Australian dollar

The Australian dollar is stronger this morning, pushing back above US$0.63 amid elevated price action as markets respond to the US reciprocal tariff program. President Trump announced yesterday his administration would impose a blanket 10% tariff on just over two thirds of countries around the world, while a further 60 countries running an elevated trade surplus with the US will face significantly higher taxes. Yesterday’s announcement and updated trade agenda is much more aggressive than we anticipated, prompting a significant shift in risk sentiment. US risk assets tumbled while markets chased haven corridors putting early pressure on the AUD and forcing a break below US$0.6250. As markets absorbed the implications of President Trump’s tariff itinerary, focus shifted toward the likely impacts on US growth. Investors are seemingly more concerned over the negative growth impacts, elevating Fed rate cut expectations and driving US yields lower. With fears for a recession in the US growing, the USD underperformed overnight failing to take advantage of its haven status, allowing the AUD to climb toward intraday highs just short of US$0.6390. The AUD opens this morning at US$0.6320.

Our focus today remains with tariff headlines and the broader market response, while US non-farm payrolls will prove key in shaping direction into the weekly close. A soft payroll print will serve to elevate recession fears and could help propel the AUD toward US$0.64.

Key Movers

The US dollar plunged through Thursday as markets responded to the US’s revised tariff agenda. Market focus shifted toward the negative impacts of tariffs on US growth, rather than the possible inflation implications driving US yields lower, as markets priced in additional Fed rate cuts through the end of the year. Markets are now pricing 92 basis points of cuts versus 77 points priced prior to “Liberation Day” announcements. US risk assets and the dollar suffered heavy losses with the US DXY index down 1.63%, led by gains for the safe haven yen and Swiss franc, while the euro enjoyed strong gains up over 1.1030 and the British pound eyed a break toward 1.32 before settling near 1.31 leading into the Asian session on Friday.

Our focus today remains with the fall out from the US reciprocal tariff agenda, while US non-farm payrolls dominate the macroeconomic ticket. We are keenly attuned to underlying labour market performance. A soft read will only elevate concerns for recession and could weigh on the USD into the weekly close.