[SYDNEY] The Australian and New Zealand dollars were revived by a historic stock market rebound after US President Donald Trump paused most of his reciprocal tariffs, but worryingly for the two Antipodeans, he said duties on China would rise to 125 per cent.
The Aussie slipped 0.5 per cent to US$0.6121 on Thursday, having rallied 3.3 per cent overnight – the biggest daily gain in 15 years – to bounce off a five-year low of US$0.5912. It is still 2.7 per cent lower than the close on April 2 when Trump announced tariffs on the rest of the world, wrecking markets.
The kiwi dollar eased 0.2 per cent to US$0.5636 after jumping 2.1 per cent overnight to pull away from a five-year trough of $0.5485. It faces near-term resistance at US$0.5650.
In a stunning U-turn, Trump gave most countries a 90-day reprieve in enacting his reciprocal tariffs that took effect less than 24 hours ago. The reversal sparked a historic rally in US stocks and a sharp pullback in Treasury yields.
It was so sudden that Deutsche Bank had to revert to its previous call of a quarter-point rate cut for the Reserve Bank of Australia in May, having changed to a half-point reduction just 48 hours ago.
“The drastic reduction in financial market pessimism in the past few hours reduces the urgency for the RBA to respond to all this with an outsized cut,” said Phil O’Donaghoe, chief economist at Deutsche.
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“Rate cuts still coming, but back to 25 for the RBA in May.”
National Australia Bank – one of the “Big Four” Australian banks – still seems concerned. It on Thursday changed its call to a half-point cut in May, adding that the RBA would have to ease more quickly through the middle of the year to a terminal rate of 2.6 per cent.
More concerning for Australia, which is heavily reliant on trade with China, Trump ramped up the pressure on Beijing with plans to raise tariffs on Chinese goods to a whopping 125 per cent, from 104 per cent. Beijing has so far struck back against Washington on every measure.
Swaps imply a quarter-point rate cut from the RBA has been fully priced in for May, with some risk for a large 50 basis point move. A total easing of 120 basis points – equivalent to about five rate cuts – has been expected for all of this year.
Australian bonds were sold on Thursday amid the sharp rebound in stocks.
Australian three-year government bond futures fell 10 ticks to 96.67, off a two-year high of 96.86. They have, however, rallied more than 40 ticks over the past two weeks as investors bet the RBA could cut more aggressively amid the global trade uncertainty. REUTERS
