The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

1643 ET - AUD/USD is at 0.6161 early in Asia and is likely to fall further this week, possibly testing 0.6100, says CBA Currency Strategist Joe Capurso. There are no important influences supporting AUD/USD, he adds. The tariff war undermines AUD against most currencies, with the strength of the U.S. economy also putting downward pressure on the pair, Capurso adds. Meanwhile, the Chinese economy is weak, commodity prices continue to fall and the Reserve Bank of Australia will likely start an interest-rate cutting cycle this month, he adds. A big fall in global equity markets would also weigh heavily on AUD/USD this week, Capurso says. (james.glynn@wsj.com; @JamesGlynnWSJ)

1638 ET - Tariffs dislocate global trade, add to costs, and protect industries that have no right to exist, says Stephen Koukoulas, managing director of Market Economics in Canberra. Trump's tariffs and the understandable and legitimate retaliation from Canada, Mexico, China--and soon everyone else--is the proverbial "sand in the gearbox of global trade and growth," he says. There's not a country that has achieved long-run sustainable increases in growth and living standards as a result of a tariff wall, Koukoulas says. (james.glynn@wsj.com; @JamesGlynnWSJ)

1624 ET - The savage moves in FX markets since President Trump's tariffs announcement makes clear that many investors were still viewing tariff threats as a bargaining tool, says Sean Callow, currency analyst at InTouch Capital Markets. Investors may have been expecting any decision to be moderated by advisers such as Treasury Secretary Bessent, he says. The market has been punishing the CAD in early trade on Monday. The U.S. tariffs on Canada were on the extreme end of market scenarios, while Trump has promised to hit Europe hard, Callow adds. USD/CAD is up 1.4% since Friday, approaching 1.4730. (james.glynn@wsj.com; @JamesGlynnWSJ)

1555 ET - President Trump's tariffs come close to representing the most hard-lined approach of all the scenarios considered possible, says Chris Weston, head of research at Pepperstone. There seems little chance the punchy tariffs set on these three nations will be reduced any time soon, he adds. Investors are likely to turn more skittish toward equity markets, while the tariffs stoke currency and cross-asset volatility. Still, the base case is that this won't trigger a full-blown risk aversion move, or a 10% decline in the S&P 500, Weston adds. (james.glynn@wsj.com; @JamesGlynnWSJ)

1548 ET - With the first shots of the 2025 trade war now exchanged, the world is watching closely to see how the U.S. will respond to retaliatory tariff announcements by Canada and Mexico. Also, how China will react to its new and unwelcome 10% tariff, says Tony Sycamore, market analyst at IG. Chinese authorities may allow the CNY to soften and announce new stimulus measures, he adds. Sycamore is expecting fireworks when the CAD and MXN open for trade on Monday, given both economies now face the unwelcome prospect of recession and will be expected to use their currencies as a cushion. (james.glynn@wsj.com; @JamesGlynnWSJ)

1545 ET - U.S. and EU equity futures are likely among the first to come under selling pressure in Asia, as markets stand back to watch a widening trade war sparked by the Trump White House, says Chris Weston, head of research at Pepperstone. In FX, USD/CAD, CAD/JPY, USD/MXN and USD/CNH are all set to get a working over by traders, he adds. AUD, NZD and ZAR are also likely to trade weaker in sympathy, Weston says. How the PBOC manages the daily CNY fixing rate could determine the extent of FX volatility among the G10 currencies, he adds. (james.glynn@wsj.com; @JamesGlynnWSJ)

1540 ET - The Trump White House has begun what could escalate into the largest global trade war in decades, says Kieran Davies, economist at Coolabah Capital. Canada, Mexico, and China account for a combined 42% of U.S. goods imports. Actions so far lift the effective U.S. tariff rate to 11%, from 2.5%, to be at the highest level since the second world war, he says. If the EU is added, the import share climbs to 61%, taking the effective U.S. tariff to 16%, the highest since the great depression, Davies says. (james.glynn@wsj.com; @JamesGlynnWSJ)

1536 ET - If U.S. tariffs on Canada, Mexico were to remain in place indefinitely, they would represent an enormous negative shock for the Canadian and Mexican economies, ANZ says. The tariffs will also be inflationary in the U.S, impacting more than 40% of U.S. imports and close to 5% of GDP, lifting the effective average tariff rate from around 3% to nearly 11%, it adds. ANZ adds that, using Federal Reserve model parameters, the tariffs could knock 1.2% off U.S. GDP and add 0.7% to PCE inflation, assuming retaliation of equivalent magnitude. With such enormous uncertainty about the likely duration of the tariffs, the response, and the growth and inflation impacts, the only thing that seems certain over the week ahead is market volatility in bonds, FX and equities, ANZ adds. (james.glynn@wsj.com; @JamesGlynnWSJ)

1533 ET - The Bank of Canada is entering a period of great uncertainty and will likely need to cut interest rates cautiously, says Jason Daw, head of North America Rates Strategy at RBC Dominion Securities. Daw had expected the BOC to cut rates by 25 bps at each of its next four meetings, ending with a terminal cash rate of 2%. But that call did not account for tariffs. If the tariffs last longer than 3-6 months, the chance of the overnight rate ending 2025 above 2% is small, he says. More likely it is below. The fiscal response in Canada to the economic shock will be critical to how the BOC reacts. The risks are hard to quantify and add to the case for a cautiously cutting BoC, Daw adds. (james.glynn@wsj.com; @JamesGlynnWSJ)

1528 ET - President Trump's 25% tariffs on Canada and Mexico and an additional 10% tariff on China from this Tuesday is the first strike in what could become a very destructive global trade war, says Paul Ashworth, chief North America economist at Capital Economics. Imports from the European Union will be hit within 1-2 months and a universal tariff is coming in April. Since exports to the U.S. account for around 20% of GDP, tariffs could plunge both the Canadian and Mexican economies into recession later this year, Ashworth says. The resulting surge in U.S. inflation from these tariffs and future measures is going to come even faster and be larger than CapEcon expected, meaning the window for the Fed to resume cutting interest rates over the next 12-18 months just slammed shut, Ashworth says. (james.glynn@wsj.com; @JamesGlynnWSJ)

(END) Dow Jones Newswires

February 02, 2025 16:43 ET (21:43 GMT)

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