Australian Dollar: Asian Markets Collapse on Trade Fears, GBP/AUD Sees 1% Pullback

April 7, 2025 - Written by Frank Davies

STORY LINK Australian Dollar: Asian Markets Collapse on Trade Fears, GBP/AUD Sees 1% Pullback

Asian equity markets came under very heavy pressure on Monday amid fears that US tariffs would cause major damage to the regional economy.

Major unease over the Asian economy has triggered fresh selling pressure on the Australian and New Zealand dollars.

The Pound to Australian dollar (GBP/AUD) exchange rate surged to a fresh 9-year highs near 2.1650 before a retreat to 2.1430.

The Pound to New Zealand dollar (GBP/NZD) exchange rate also jumped to fresh 9-year highs at 2.3350 before a retreat to just below 2.31.

The Hong Kong HSI index slumped over 13% on the day while the Shanghai index posted a sharp 7% decline. Japan’s Nikkei 225 index also slumped 7.8%.

Danske Bank commented; “Risk-off taken to new extremes this morning with a circuit breaker briefly suspending Japanese trading this morning due to too large sell orders.”

Australian stocks declined over 4% with a 3.5% slide in New Zealand.

Fear has intensified in global markets, amplifying selling pressure on risk-sensitive currencies.

The Reserve Bank of New Zealand will announce its latest interest rate decision on Wednesday local time with consensus forecasts for a 25 basis-point cut in rates to 3.50%.

If equity markets continue to deteriorate, there will be pressure for a larger cut in rates.

On Friday, China retaliated with 34% tariffs on imports from the US, reinforcing fears over a trade war.

There has, however, also been a domestic response with a pledge of increased investment.

MUFG commented; “Under plans outlined in the People’s Daily, China appears more committed to make bolstering domestic demand its “long-term strategy” and to turn consumption into a “major driver and ballast” for economic growth. The government will look to boost consumer spending with “extraordinary strength”, cut rates and pump more long-term liquidity into the banking system whenever needed.”

The bank added; Stepped up efforts to boost domestic demand could be one silver lining from the trade war that would help to rebalance the global economy alongside recent plans from Germany to significantly loosen fiscal policy.

Hopes for a Chinese boost to domestic demand will provide some reassurance to Australian and New Zealand growth prospects.

Tariff developments will be watched very closely in the short term.

According to Bank of America; “Our base case remains that some of these tariffs will be negotiated away as Trump focuses on comprehensive country specific packages, with the exception of China.”

ANZ notes that there could be long-term benefits for New Zealand on goods substitution, but added; “the corrosive impact of uncertainty and slower global growth could weigh on the Kiwi for a bit longer, and we remain cautious, and believe it’s reasonable to expect “risk-off” conditions to punctuate sentiment for the foreseeable future.”

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TAGS: Pound Australian Dollar Forecasts