Market Briefing: Macro & geopolitical risks
Market tensions. Outside of a late session rally in US stocks there was a 'risk off' tone. Bond yields fell. USD rose. AUD near where it started February.
Volatility. Markets have been volatile since the November US election. Given the Trump policy platform more bursts of volatility likely over the near-term.
Event radar. US tariffs on MX, CA & CH due to start this week. US jobs report & speeches by Pres. Trump & Fed Chair Powell scheduled. AU GDP due.
Global Trends
Financial markets remain on edge as underlying macro concerns are compounded by geopolitical tensions. Outside of a late session rally in US equities on Friday (the S&P500 swung from being in negative territory to closing 1.6% higher as portfolio rebalancing flows kicked into gear during the final few hours of trade) there was a ‘risk off’ tone across markets. Bond yields declined with US rates falling ~8bps. The US 10yr rate (now ~4.21%) is tracking down near mid-December levels. Growth linked assets like commodities such as copper, iron ore, and WTI crude oil lost ground. In FX, the USD’s revival extended. EUR slipped under ~$1.04 for the first time in a couple of weeks, and USD/JPY ticked up towards ~151. Elsewhere, USD/SGD is hovering just below its 50-day moving average (~1.3548), while the NZD (now ~$0.56) and AUD (now ~$0.6213) remained on the backfoot with the latter closing February around where it started the month.
The US data flow was ‘soft’ with the core PCE deflator (the Fed’s preferred inflation gauge) decelerating to its slowest pace since June (now ~2.65%pa) and real personal spending tumbling ~0.5% in January. The US goods trade balance also posted a hefty ‘deficit’, potentially due to a leap in imports as businesses ‘front run’ impending tariffs. Based on the current run-rate, a weak Q1 US GDP is looking likely with some chance the economy ‘contracted’ over the first few months of 2025. Added to that the breakdown of the press conference between President’s Trump and Zelenskyy dampened prospects of a ceasefire agreement between the Ukraine and Russia.
As our chart shows, markets (particularly equities) have been more volatile since the November US election compared to the period after President Trump’s first win. Based on the offshore event calendar we believe more bursts of volatility should be anticipated with risk sentiment set to be pushed and pulled by how the events play out.
In the US, markets will be watching to see if tariffs are imposed on imports from Canada, Mexico, and China as planned on 4 March or whether a last second deal can be struck which in turn means retaliatory steps aren’t taken. US President Trump is also due to address Congress (Weds AEDT) and may give insights into his policy plans. The US jobs report (Fri night AEDT) is also set to be released later in the week with Fed Chair Powell speaking on the outlook after that (Sat AEDT). In China, the National People’s Congress is scheduled (from Weds AEDT). Headlines will center on China's targets for growth, deficits, and inflation as this will provide a guide to the stimulus drive. In Europe the ECB is expected to cut interest rates again (Thurs night AEDT). On net, we think the USD is likely to remain firm though it may not push much higher given a lot of positives look to be baked in.
Global event radar: EZ CPI (Tonight), China NPC (from Weds), ECB Meeting (Thurs night), US Jobs Report (Fri night), US Fed Chair Powell Speaks (Sat), US CPI (12th Mar), BoC Meeting (13th Mar), China Data (17th Mar), US Retail Sales (17th Mar), BoJ Meeting (19th Mar), US Fed Meeting (20th Mar), BoE Meeting (20th Mar)
Trans-Tasman Zone
AUD and NZD have remained heavy with the firmer USD stemming from the economic and geopolitical concerns an underlying driver (see above). At ~$0.56 the NZD is within striking distance of its cyclical lows while the AUD (now ~$0.6213) is back broadly inline with where it kicked off last month. The AUD has also been dragged down on a few of the crosses. AUD/EUR (now ~0.5978) is near the bottom of its multi-month range, as is AUD/GBP (now ~0.4935), AUD/CNH (now ~4.53), and AUD/JPY (now ~93.60). By contrast, AUD/NZD is tracking close to ~1.1090, ~0.7% from its recent peak.
As mentioned previously, given the environment we are in wider intra-day ranges in currencies like the AUD should be anticipated for a while. Participants may have forgotten about AUD’s volatility. Since the late-1980s the average daily trading range in the AUD has been ~1%, but in the last 2-years it has only been above average about ~1/3 of the time.
Based on the upcoming global and domestic event calendar more bursts of volatility look likely as various cross-currents wash through. As discussed, US tariffs on imports from Canada, Mexico, and China are planned to kick off on 4 March. On top of that US President Trump is scheduled to give a speech to Congress (Weds AEDT), the US jobs report is due (Fri night AEDT), and US Fed Chair Powell discusses the outlook (Sat AEDT). In China, the annual National People’s Congress also takes place (from Weds AEDT). Focus here will be on China’s updated growth and deficit targets. Another “around 5%” GDP growth objective is anticipated. Given the sheer size of China’s economy (see chart below) and headwinds stemming from tariffs this would imply more policy stimulus measures aimed at boosting domestic demand are in the pipeline. This is important when it comes to the AUD’s medium-term trend as these are the areas Australia’s key exports are plugged into.
Q4 2024 Australian GDP (Weds AEDT) and a speech from RBA Deputy Governor Hauser (Weds AEDT) are also on the run sheet. Based on the partial data already released we believe growth momentum improved into year-end. A pickup in activity should reinforce the RBA’s ‘cautious’ stance to further interest rate cuts. Markets are factoring in the next RBA move by July. On balance, while further AUD volatility is probable, we think there are uneven risks down near current low levels (i.e. there is more upside than sustained downside potential). Outcomes versus expectations drive markets, and a fair degree of negativity looks priced into the AUD. The AUD is still tracking at a discount to fundamentals (it is ~4 cents below our ‘fair value’ models), sentiment is already ‘bearish’ (‘net short’ AUD positioning, as measured by CFTC futures, remains elevated), and the AUD has not traded much below where it is over the last decade (the AUD has only been sub-$0.6250 ~2% of the time since 2015).
AUD & NZD event radar: EZ CPI (Tonight), AU GDP (Weds), China NPC (from Weds), ECB Meeting (Thurs night), US Jobs Report (Fri night), US Fed Chair Powell Speaks (Sat), US CPI (12th Mar), BoC Meeting (13th Mar), China Data (17th Mar), US Retail Sales (17th Mar), BoJ Meeting (19th Mar), US Fed Meeting (20th Mar), NZ GDP (20th Mar), AU Jobs (20th Mar), BoE Meeting (20th Mar)
AUD levels to watch (support / resistance): 0.6130, 0.6170 / 0.6260, 0.6290
NZD levels to watch (support / resistance): 0.5520, 0.5570 / 0.5650, 0.5690
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (3rd March) AUD Inventories (Q4) (11:30am) AUD Job Ads (Feb) (11:30am) CNY Caixin PMI – Manufacturing (Feb) (12:45pm) EUR CPI Inflation (Feb P) (9pm)
TUESDAY (4th March) USD ISM Manufacturing (Feb) (2am) USD Fed’s Musalem Speaks (4:35am) AUD Current Account Balance (Q4) (11:30am) AUD Net Exports (Q4) (11:30am) AUD Retail Sales (Jan) (11:30am) AUD RBA Meeting Minutes (11:30am)
WEDNESDAY (5th March) USD Fed’s Williams Speaks (6:20am) CNY National People's Congress (no set time) AUD RBA Dep. Gov. Hauser Speaks (8:45am) AUD GDP (Q4) (11:30am) JPY BoJ Dep. Gov. Uchida Speaks (12:30pm) CNY Caixin PMI – Services (Feb) (12:45pm) USD Pres. Trump Address to Congress (1pm)
THURSDAY (6th March) USD ADP Employment (Feb) (12:15am) GBP BoE Governor Bailey Speaks (1:30am) USD ISM Services (Feb) (2am) USD Fed’s Beige Book (6am) CNY National People's Congress (no set time) NZD Volume of Buildings (Q4) (8:45am) AUD Building Approvals (Jan) (11:30am) AUD Trade Balance (Jan) (11:30am)
FRIDAY (7th March) EUR ECB Decision (12:15am) USD Initial Jobless Claims (12:30am) EUR ECB President Lagarde Speaks (12:45am) USD Fed’s Waller Speaks (7:30am) CNY National People's Congress (no set time) USD Fed’s Bostic Speaks (11am) CNY Trade Balance (Feb) (no set time) EUR Germany Factory Orders (Jan) (6pm) EUR ECB’s Lagarde, Nagel, Knot & Panetta Speak (8:30pm)
SATURDAY (8th March) USD Jobs Report (Feb) (12:30am) CAD Jobs Report (Feb) (12:30am) USD Fed’s Bowman Speaks (2:15am) EUR ECB’s Centeno & Kazaks Speak (2:45am) USD Fed’s Williams Speaks (2:45am) USD Fed’s Kugler Speaks (4:20am) USD Fed Chair Powell Speaks (4:30am) USD Fed’s Kugler Speaks (5am)
*Note, all times/dates provided are AEDT
About the author
