Safe Havens Surge, Commodity Dollars Stumble Amid Trade War Fears
The Forex Market Roundup
Monday, March 31, 2025, Week 14
US reciprocal tariffs, especially the 25% levy on auto imports, are set to take effect April 2nd and will be the primary driver of risk sentiment and currency movements this week. Key economic events to watch include global Manufacturing PMIs and US ISM Manufacturing PMI and Non-Farm Payrolls data, which will be analysed for signs of economic impact from the tariffs.
Currency Strengths (What to buy, what to sell)
Japanese Yen (JPY): Fundamental Strength: Indifferent to Strong / Sentiment Outlook: Bullish. Benefitting strongly from safe-haven flows and renewed focus on BOJ normalization potential after strong Tokyo CPI data. Remains sensitive to risk-off, but US auto tariffs pose a direct threat to its economy, creating a complex dynamic.
British Pound (GBP): Fundamental Strength: Indifferent / Sentiment Outlook: Indifferent to Bullish. Showed surprising resilience, supported by strong domestic retail sales and relative insulation from direct auto tariff impact compared to the Eurozone. BOE appears less dovish than ECB.
Swiss Franc (CHF): Fundamental Strength: Indifferent / Sentiment Outlook: Indifferent to Bearish. Continues its safe-haven role, supported by Gold's record highs. However, the recent SNB rate cut caps upside potential, and institutional positioning remains heavily short. Lagged JPY's momentum late last week.
Euro (EUR): Fundamental Strength: Weak / Sentiment Outlook: Bearish. Directly exposed to US auto tariffs. Recent soft inflation data from France/Spain significantly boosted ECB easing expectations. Growth outlook remains sluggish.
US Dollar (USD): Fundamental Strength: Indifferent to Weakening / Sentiment Outlook: Bearish. Suffered from concerns that its own tariff policies will damage domestic growth. Weak consumer sentiment and stagflationary fears overshadowed sticky core PCE data. Lost some safe-haven appeal to JPY/CHF recently.
Australian Dollar (AUD): Fundamental Strength: Indifferent to Weak / Sentiment Outlook: Bearish. Vulnerable to global risk-off sentiment, China slowdown concerns, and domestic RBA easing expectations (reinforced by soft CPI). Iron ore resilience offers some support.
New Zealand Dollar (NZD): Fundamental Strength: Weak / Sentiment Outlook: Bearish. Pressured by RBNZ easing expectations, weak domestic confidence, and high exposure to global trade tensions. Beneficiary of extreme cheese price strength, but macro factors dominate.
Canadian Dollar (CAD): Fundamental Strength: Very Weak / Sentiment Outlook: Very Bearish. Directly targeted by US auto tariffs, stagnant GDP growth reinforces BoC easing bias. Highly vulnerable to trade conflict escalation and oil price weakness driven by recession fears.
Japanese Yen (JPY): Indifferent to Strong Fundamentals, Bullish Sentiment
The Japanese Yen (JPY) currently presents a complex picture for forex traders, characterized by technically strong fundamentals clashing with external pressures, resulting in recently bullish sentiment despite an overall "indifferent to strong" fundamental rating. The dominant factor remains the Bank of Japan's (BOJ) ongoing policy normalization, with expectations of further interest rate hikes fuelled by above-target inflation and rising wages. However, this potential JPY strength is constantly challenged by wide interest rate differentials favouring other major currencies and the significant emerging threat of US protectionism, particularly tariffs targeting Japan's crucial automotive sector, which could dampen economic growth and complicate BOJ policy.
In the recent past, the narrative heavily favoured the BOJ's gradual shift away from ultra-loose policy, culminating in the landmark decision to exit negative interest rates in March. Developments over the last seven days strongly reinforced this hawkish potential, as stronger-than-expected Tokyo inflation data and explicit BOJ communications regarding the possibility of further rate hikes triggered significant JPY appreciation late in the week. Concurrently, however, the confirmation of US auto tariffs emerged as a potent counter-narrative, causing a sharp sell-off in Japanese equities and highlighting a potential divergence where trade fears weigh on the economy even as monetary policy tightens.
Looking ahead, the JPY is likely to find continued support from the focus on BOJ normalization and potential safe-haven inflows if global risk aversion increases due to trade tensions. However, downward pressure could resurface if the negative economic impact of US tariffs becomes the primary market focus, potentially forcing the BOJ into a more cautious stance, or if global risk appetite stages a strong recovery, drawing attention back to unfavourable yield differentials. Key economic indicators to monitor this week include the Tankan Large Manufacturers Index for insights into business sentiment amid trade fears, alongside Industrial Production and Retail Sales data, which will provide updates on the underlying strength of the domestic economy and its capacity to withstand further BOJ tightening.
British Pound (GBP): Indifferent Fundamentals, Indifferent to Bullish Sentiment
The British Pound (Sterling) currently occupies a space of indifference regarding its core fundamentals, though recent positive data has nudged sentiment towards cautiously bullish. For forex traders, the primary focus is deciphering the conflicting signals from the UK economy to anticipate the Bank of England's (BOE) future policy path. Stronger data points suggesting resilience periodically push back against expectations for imminent rate cuts, while softer inflation figures and underlying growth concerns keep easing possibilities firmly on the table, creating a complex calculus for GBP direction.
Over the recent past, Sterling's performance reflected this tug-of-war. The last seven weeks saw periods where robust data like service sector activity, upwardly revised GDP, and strong retail sales tempered BOE easing bets, countered by moments when softer inflation readings or negative growth revisions (like those in the Spring Statement) brought rate cut expectations forward. Specifically within the last seven days, this conflict was evident as surprisingly strong February Retail Sales data suggested ongoing consumer strength, contrasting with the lingering negative sentiment from the previous week's official growth downgrade and persistent global risk aversion which capped potential gains.
Looking ahead, Sterling's near-term trajectory could find support from continued consumer resilience, its perceived relative insulation from direct US auto tariffs compared to the Eurozone, and the potential for the BOE to remain less dovish than peers like the ECB if UK inflation proves stubborn. However, downward pressure could re-emerge if global risk aversion intensifies significantly, upcoming UK economic data disappoints (reigniting BOE easing speculation), or if market focus shifts back towards the fiscal constraints highlighted in the Spring Statement. Key indicators to monitor this week include BoE Consumer Credit and Mortgage Approvals for insights into consumer and housing market health, alongside the Nationwide Housing Prices and the S&P Global Construction PMI to gauge broader economic momentum.
Swiss Franc (CHF): Indifferent Fundamentals, Indifferent to Bearish Sentiment
The Swiss Franc (CHF) currently presents a mixed picture for forex traders, largely defined by the conflicting forces of its traditional safe-haven appeal against the Swiss National Bank's (SNB) recent shift towards monetary easing. Top of mind for traders is how these opposing drivers will balance out; global trade tensions and geopolitical risks naturally draw flows into the CHF, yet the SNB's surprise rate cut in March—making it the first major central bank to ease this cycle due to very low domestic inflation—acts as a significant counterweight, potentially capping the currency's strength, especially relative to other havens like Gold or the Japanese Yen.
In the recent past, the dominant narrative over the last seven weeks culminated in the SNB's decision to cut interest rates in March, a direct response to persistently low inflation. Developments within the past seven days highlighted the resulting tension: while surging Gold prices, driven by US tariff fears, bolstered the CHF's safe-haven credentials, the currency noticeably lagged the upward momentum seen in Gold and the JPY. This underperformance likely reflects the market digesting the SNB rate cut, alongside emerging uncertainty from conflicting domestic economic signals, such as a plunge in the ZEW sentiment indicator followed shortly by an improvement in the KOF Economic Barometer.
Looking ahead, the CHF's direction in the near future hinges critically on the evolution of global risk sentiment and upcoming domestic data. Further escalations in trade wars or geopolitical instability could drive renewed safe-haven demand, providing upward support, potentially amplified if Gold prices remain elevated. Conversely, downward pressure could intensify if market focus remains on the SNB's easing path—especially if upcoming inflation data confirms deflationary pressures—or if global risk appetite improves significantly. Key economic indicators to monitor closely include the procure.ch Manufacturing PMI for industrial health, Retail Sales for consumer activity, and crucially, the March Inflation Rate, which will be highly influential for future SNB policy expectations and market positioning.
Euro (EUR): Weak Fundamentals, Bearish Sentiment
The Euro (EUR) is currently weighed down by weak economic fundamentals and prevailing bearish market sentiment. For forex traders, the most pressing concern is the growing expectation of monetary easing by the European Central Bank (ECB), driven by consistently moderating inflation figures alongside signs of sluggish economic activity across the Eurozone. This dovish outlook is further compounded by the significant emerging threat of US protectionist policies, specifically recently confirmed auto tariffs, which pose a direct risk to core Eurozone industries like Germany's automotive sector, darkening the growth outlook and keeping the currency under pressure.
In the recent past, the narrative surrounding the EUR has increasingly centred on the likelihood of ECB rate cuts. Over the last seven weeks, this theme solidified as inflation cooled and growth remained stagnant, despite occasional temporary support from fiscal stimulus hopes. Within the last seven days, this dovish sentiment was significantly reinforced by softer-than-expected preliminary inflation data from France and Spain, leading markets to price in a greater number of ECB rate cuts for 2025. Concurrently, the confirmation of US auto tariffs shifted from a background risk to a direct and immediate negative factor for the Eurozone's economic prospects, adding substantial weight to the EUR.
Looking ahead, the Euro faces considerable headwinds, suggesting downward pressure is likely to persist in the near future. The anticipated negative economic fallout from US auto tariffs, combined with continued market pricing of ECB rate cuts potentially commencing as soon as April, forms a strong bearish case. Key economic indicators to monitor closely this week include the Eurozone Flash Inflation reading for March, which is crucial for gauging ECB policy intentions ahead of their April meeting, along with the final Manufacturing and Services PMI releases and Retail Sales data for further evidence of economic resilience or weakness. While broad US dollar weakness could offer some counter-support, the confluence of weak domestic fundamentals, easing monetary policy expectations, and direct tariff exposure points towards a continued strategy of selling the Euro on rallies.
United States Dollar (USD): Indifferent to Weakening Fundamentals, Bearish Sentiment
The United States Dollar (USD) is currently navigating a complex environment characterized by weakening fundamental signals and a distinctly bearish turn in market sentiment. For forex traders, the top-of-mind concern has shifted towards the potential negative domestic economic consequences stemming from the US administration's own protectionist trade policies. While the Federal Reserve's policy path amidst sticky inflation remains a factor, the market is increasingly focused on how escalating trade disputes, particularly the confirmed auto tariffs, could harm US growth, complicate Fed decisions, and potentially undermine the dollar's traditional safe-haven appeal when the risk originates domestically.
Over the recent past, the USD's trajectory involved conflicting signals. During the last seven weeks, periods of dollar strength, supported by relatively resilient data and Fed caution on rate cuts, alternated with weakness driven by signs of economic softening and the looming impact of trade tensions. However, a significant narrative shift occurred within the last seven days; despite relatively firm core inflation data (PCE), concerns about the stagflationary impact of tariffs (evidenced by plummeting consumer sentiment alongside rising long-term inflation expectations) overwhelmed other factors, leading to considerable USD selling as markets began pricing in self-inflicted economic damage.
Looking ahead, the near-term outlook for the USD leans towards further downward pressure, particularly if market focus remains locked on the negative growth implications of tariffs and upcoming key economic data confirms a slowdown. Potential catalysts for continued USD weakness include disappointing ISM Manufacturing/Services PMI readings or a weak Non-Farm Payrolls report, which would reinforce economic concerns and potentially prompt more dovish commentary from Fed officials. Conversely, upward support could emerge from unexpectedly strong inflation data reigniting Fed hawkishness, a significant rebound in economic indicators, or a major escalation in external geopolitical risks driving traditional haven flows back to the dollar. Crucial indicators to monitor this week are the ISM PMIs, JOLTs Job Openings, and Friday's Non-Farm Payrolls and Unemployment Rate.
Australian Dollar (AUD): Indifferent to Weak Fundamentals, Bearish Sentiment
The Australian Dollar (AUD) is currently navigating a complex environment where bearish sentiment prevails despite somewhat mixed underlying fundamentals. For forex traders, the primary focus is the ongoing tug-of-war between external concerns, chiefly China's economic health and its impact on commodity demand, and domestic factors influencing potential Reserve Bank of Australia (RBA) policy easing. Adding to this, the emerging threat of US protectionism and its negative implications for global growth and risk appetite is increasingly weighing on the risk-sensitive AUD, solidifying its vulnerable position.
Over the recent past, specifically the last seven weeks, the AUD's price action reflected the battle between fears of a Chinese slowdown and periods of resilient Australian economic data that tempered RBA rate cut expectations. Within the last seven days, this tension was highlighted by softer-than-expected domestic CPI data reigniting speculation about a potential RBA rate cut in May, conflicting somewhat with persistently firm iron ore prices. Simultaneously, the confirmation of US auto tariffs, while not directly aimed at Australia, became a significant negative narrative, souring global growth prospects and directly impacting AUD sentiment.
Looking ahead, the AUD faces potential downward pressure in the near future, primarily driven by the implementation of US tariffs hurting global risk sentiment, the lingering possibility of a May RBA rate cut, and any potential disappointment from upcoming Chinese economic data. Key indicators to monitor closely this week include the crucial Chinese Manufacturing PMI figures (both Official and Caixin) for signals on commodity demand, and the RBA's interest rate decision, where the accompanying statement will be scrutinized for any shifts in forward guidance regarding future policy. While resilient commodity prices or broad US dollar weakness could offer temporary support, the prevailing weak fundamentals and bearish sentiment suggest a continued sell-on-rallies approach may be favoured by traders.
New Zealand Dollar (NZD): Weak Fundamentals, Bearish Sentiment
The New Zealand Dollar (NZD) is currently facing significant headwinds, dominated by weak underlying economic fundamentals and decidedly bearish market sentiment. For forex traders, the top-of-mind concerns revolve around persistent expectations that the Reserve Bank of New Zealand (RBNZ) will soon cut interest rates, driven by worries about sluggish domestic growth. Compounding this is the emerging and acute threat of US protectionist tariffs, which poses a direct risk to New Zealand's small, open, and export-reliant economy, keeping downside pressure on the currency.
In the recent past, the narrative supporting NZD weakness has solidified. Over the last seven weeks, market focus intensified on the likelihood of RBNZ monetary easing following confirmation that the country entered a technical recession and subsequent soft data releases. This view was reinforced significantly within the last week by a sharp drop in consumer confidence to a five-month low, further dampening domestic economic prospects. Simultaneously, the general risk of global trade tensions crystallized into a specific concern about impending US reciprocal tariffs, adding a distinct layer of negative pressure onto the NZD.
Looking ahead, the near-term outlook for the NZD appears biased towards further depreciation. Downward pressure is expected to persist due to the anticipated negative impact of US tariff implementation (details expected early next week), continued market pricing of RBNZ rate cuts ahead of their April 9th meeting, and the overhang of weak domestic sentiment. Key economic indicators to monitor closely include the upcoming NZ ANZ Business Confidence reading for March, where a decline could reinforce easing expectations, and the Australian RBA interest rate decision, which influences regional risk sentiment and the crucial NZD/AUD cross-rate. While crowded short positioning could lead to sharp counter-trend rallies, the fundamental backdrop suggests selling into strength remains the prevailing strategy.
Canadian Dollar (CAD): Very Weak Fundamentals, Very Bearish Sentiment
The Canadian Dollar (CAD) is currently grappling with an exceptionally weak fundamental backdrop and deeply bearish market sentiment. For forex traders, the overwhelming focus is on the dual intense pressures crushing the currency: persistent expectations of Bank of Canada (BoC) monetary easing driven by significant domestic growth concerns, and the direct, escalating threat of damaging US protectionist tariffs aimed squarely at Canadian exports. While oil price fluctuations remain a factor, they are largely overshadowed by these dominant negative themes, particularly the emerging narrative of a specific and potentially severe bilateral trade conflict developing between Canada and the US.
Reflecting this negative environment, the recent past has seen an intensification of downward pressure on the CAD. Over the last seven weeks, the dominant drivers have been the anticipated BoC easing cycle and worsening US trade relations. Within the last seven days, this bearish outlook solidified significantly: stagnant February GDP data reinforced market conviction that the BoC will need to cut rates soon, while the confirmation of US auto tariffs provided a direct and substantial blow to Canadian industry, cementing the negative narrative and pushing the focus towards a specific, targeted US-Canada trade dispute.
Looking ahead, the near-term outlook for the CAD appears heavily biased towards further depreciation. Intense downward pressure is expected due to the imminent implementation of US auto tariffs, the high probability of further BoC rate cuts following weak economic data, potential weakness in oil prices if global recession fears rise, and general risk aversion. Key economic indicators to monitor closely this week include the S&P Global Manufacturing PMI for industrial health, the Balance of Trade figure (expected to swing into deficit reflecting tariff impacts), and crucially, the March employment data (Unemployment Rate and Employment Change), where further weakness would strongly reinforce the case for BoC easing and likely add to CAD selling pressure.
Week 14 Key Events to Watch
China Official & Caixin Manufacturing PMIs (Mon Mar 31): Why: Key gauge of health in the world's second-largest economy, critical for commodity demand (AUD, NZD) and global risk sentiment. Impact: Strong readings (above 50) positive for risk assets/AUD/NZD; weak readings negative.
EA Inflation Rate YoY Flash (Tue Apr 01): Why: Primary input for upcoming ECB policy decision (Apr 17). Market expects further moderation. Impact: Reading at/below 2.2% forecast solidifies ECB easing case (EUR negative). Upside surprise could temper easing bets (EUR positive).
US ISM Manufacturing PMI (Tue Apr 01): Why: First major US activity indicator for March, reflecting potential early impact of tariff uncertainty. Impact: Drop below 50 signals contraction, reinforcing slowdown fears (USD negative, potentially risk-off). Resilience supports soft landing view (USD positive).
US Reciprocal Tariff Announcement/Details & Implementation (Expected early Apr/Apr 2): Why: The single most dominant market theme, driving global risk sentiment and impacting multiple currencies directly or indirectly. Impact: Specifics are crucial. Harsh/broad tariffs negative for risk assets, CAD, EUR, AUD, NZD, potentially positive for JPY/CHF havens. Leniency/exemptions positive for risk assets, negative for havens.
US Non Farm Payrolls / Unemployment Rate (Fri Apr 04): Why: Critical gauge of US labor market health amid tariff concerns and potential slowdown. Directly influences Fed policy expectations and USD. Impact: Weak data (near/below 80k forecast) confirms slowdown fears, likely boosts Fed cut bets (USD negative). Strong data challenges this narrative (USD positive).
Sources
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