FOREX: AUD and NZD Falter, CHF Surges Amid Risk Off

US President Trump has confirmed that 25% tariffs on aluminium, copper and steel as well reciprocal tariffs will be implemented in his speech to Congress. Aussie is highly sensitive to risk and global growth, which is assumed to be hit by increased protectionism. AUDUSD has declined sharply today and is currently down 0.4% to 0.6250 with the USD index off its highs to be little changed. The pair is holding above initial support at 0.6187 reaching a low of 0.6234.

• Aussie is weaker against most major currencies. AUDJPY is 0.3% lower at 93.69 off the intraday low of 93.34. While AUDNZD is slightly down to 1.1067 as kiwi is also risk sensitive. AUDEUR continues to decline and is -0.3% to 0.5887 and AUDGBP -0.3% to 0.4889.
• Australia’s Q4 GDP printed in line with expectations at 0.6% q/q and 1.3% y/y signalling the start of a tentative recovery. Productivity fell for the third straight quarter which is likely to continue to concern the RBA.
• Equities are mixed though with the ASX down 0.9% but CSI 300 +0.3%, Hang Seng up 1.6% and S&P e-mini +0.5%. Oil prices have continued falling with WTI -0.9% to $67.67/bbl. Copper is up 1.4% while iron ore is approaching $101/t.
• Later US February ADP employment, services ISM/PMIs, final January orders and the Fed’s Beige book are released. European February services/composite PMIs and Q4 Italian GDP (2nd estimate) also print. 

Q4 productivity growth was not as bad as the RBA was expecting but it still fell for the third consecutive quarter to be down 1.2% y/y, a deterioration from Q3’s -0.6% y/y. Today RBA Deputy Governor Hauser identified productivity growth as the key issue. Monetary policy cannot do anything about it and can only react to it. He also said it may be the reason why wage growth is slowing despite the strong labour market. 

• The RBA forecast productivity to fall 1.9% y/y in Q4 and it has it improving to+0.7% y/y in Q4 2025 and reaching its historical average in H1 2026, but it has consistently revised down its expectations. While it is a long-term concept, its weak performance could result in less monetary easing.
• Hours worked continued to outpace GDP growth rising 0.7% q/q in Q4, the fourth consecutive rise. In 2024, they were 1% above 2023 resulting in no improvement in productivity over the year.
• With productivity growth falling 1.2% y/y in Q4, then wage growth consistent with inflation at the RBA’s band mid-point of 2.5% is only 1.3% compared with Q4’s WPI at 3.2% y/y, assuming productivity continues to contract at around the same rate as the end of 2024.
• Unit labour costs (ULC) rose 1.6% q/q to be up 4.7% y/y tentatively implying that the moderation in ULC’s has stalled as the recent trough was 4.5% in Q3. ULC growth eased to 5.1% in 2024 from 6.6% but remains well above the 2.8% series average.

Australia productivity vs ULC y/y%

NZGBs closed showing a bear-steepener, with benchmark yields 6-11bps higher. 

• “Governor Adrian Orr unexpectedly resigned without giving a reason for his sudden departure. Orr will officially leave the bank on March 31, and Deputy Governor Christian Hawkesby will be Acting Governor until then. Finance Minister Nicola Willis will appoint a temporary governor from April 1 for a period of up to six months, following a recommendation from the RBNZ Board.” (per BBG)
• The ANZ World Commodity Price Index rose 3% month-over-month in February.
• Cash US tsys have twist-steepened, with yields 2bps lower to 2bps higher, in today’s Asia-Pac session after yesterday’s heavy session.
• Trump, in his address to Congress, praised the drop in interest rates and pledged to balance the federal budget. He urged Congress to pass tax cuts and mentioned discussions with major US car companies.
• Swap rates closed 5-9bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing is 1-6bps firmer across meetings today.
• Tomorrow, the local calendar will see CoreLogic Home Values, Volume of All Buildings data and Government 7-Month Financial Statements.
• The NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 1.75% May-41 bond tomorrow.