By Stuart Talman, XE currency strategist
President Trump's late Wednesday (NY) auto-tariff announcement has had a contained effect on global markets, predictably the greatest impact being felt by the shares of auto and transport stocks across the globe. Car manufacturers outside of the U.S. have been quick to respond, confirming they have no option but to raise prices. Germany's Dax gapped sharply lower at Thursday's open but did recovery from 1.5+% losses to close down around three-quarters-of-a-percent.
Elsewhere, the market impact was minimal, the dollar index shedding around a quarter-of-a-percent to sit in the bottom third of the G10 leaderboard whilst at the other end, the British pound reverses yesterday's softer-CPI induced losses, advancing over two-thirds-of-a-percent. The New Zealand dollar continues to be contained within tight intraday ranges, the past four day's lows all marked within a few pips of 0.5710 whilst highs have occurred in proximity to 0.5750.
The market may well have tariff fatigue after weeks of tit-for-tat that has eroded confidence and created heightened uncertainty as market participants, policy makers, businesses and households attempt to come to grips with what could be a new world order for global trade and international relations. The concentrated reaction to the White House confirming 25% tariffs on autos and parts suggests the market may be positioned for a more lenient tariff program, scheduled to be announced next Wednesday (Thursday morning, local time) - a day that Trump has coined "Liberation Day."
Projecting Liberation Day market moves via a simple, binary assessment: risk assets will rally if the market concludes the overall impact is less harmful to global trade, i.e. does not induce widespread retaliation, but rather negotiation. In this scenario, global equity markets push higher with trade-sensitive currencies such as the New Zealand and Australian dollars outperforming. The Kiwi would likely advance beyond the 18 March swing high near 0.5830, potentially testing the 200-day moving average, currently located in the low 0.5900's.
Conversely, should the White House's tariff regime spark widespread retaliatory tariffs, igniting a full-blown trade war, thereby raising fears of surging tariff-induced inflation, risk assets will be crunched lower. In this scenario, NZD/USD likely plunges back towards 56 US cents with a potential test of the year-to-date low in the low 0.55's.
It promises to be a monumental week via the mix of Liberation Day, US jobs numbers, central bank decisions and a steady flow of tier 1 data across the globe.
To the day ahead, a busy Friday serves up CPI for Tokyo, GDP and retail sales for the UK and the Fed's preferred inflation gauge, core personal consumption expenditures, the latter projected to print at 2.5% given CPI and PPI data, earlier in the month.
Barring a PCE surprise or market moving trade related headlines, expect more of the same - Friday's sessions to deliver tight ranges…..the New Zealand dollar likely to close in the low to mid 0.57's.
Stuart Talman is Director of Sales at XE. You can contact him here.
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