CNH: CNH Lags USD Sell-off After Touching YTD Highs

AUD/USD is tracking modestly higher in early Monday dealings, the pair last near 0.6300/05, after ending last Friday at 0.6289 in NY. The A$ was up around 1% for Friday's session as broad USD weakness continued. Early G10 trends are mixed today though, with EUR, JPY and CHF all weaker, by 0.30-0.50% at this stage. This likely reflects late Friday news around tariff exemptions from the US for the electronics sector.

• For AUD/USD technicals, we are above the 50-day EMA (near 0.6265), while the 100-day EMA is very close by at 0.6320/25 (which marked earlier highs this Monday). 0.6409, the Dec 9 high from last year is seen as key resistance. On the downside, 0.6116/0.5915 Low 10 / Low Apr 9 and the bear trigger, are levels in focus.
• Remarks from US President Trump on social media earlier stated that the country will look at the whole electronic supply chain and that Friday's announcement was not a tariff exception (per Rtrs). Trump added that these products are still subject to the existing 20% fentanyl related tariffs. Still, risk could be supported given the rates are lower than feared, particularly in relation to imports from China (at least for now).
• Broader risk sentiment will be in focus, with US equity market sentiment ending last week up, +1.81% for the SPX. Any further positive risk follow through could see crosses like AUD/JPY regain further ground. This pair was last near 90.75/80, with the 20-day EMA close to 91.85/90 on the upside. Friday lows in this pair just under 88.30. AUD/CHF is back to 0.5160/65, but ran into earlier resistance around 0.5200.
• The local data calendar is empty today, with RBA minutes from the last policy meeting out tomorrow. 

J.P. Morgan: "We stay bearish USD, especially vs EUR & JPY, as the tariff-induced vol shock continues to filter through markets. The 90-day postponement of reciprocal tariffs offers a degree of relief......but 10% baseline tariffs and the ratchet on China to 145% mean cyclical and trade drags will linger. These continue to erode US exceptionalism. We still see a meaningful chance of a US recession, and US inflation looks poised to weigh on US real yields to the dollar’s detriment......against an overhang of foreign ownership of assets that may drag on USD via global asset reallocation or hedging.

This backdrop is constructive for low-yielders, and some cyclical mid-yielders, particularly if risk sentiment stabilizes...
...but is still a tenuous backdrop for EM FX generally. Remain UW EM FX as recent G10 & EM FX performance vs USD have diverged.
The shift in CNY fix above 7.20 opens upside in the pair; we revise USD/CNY targets to 7.60 (7.40).
FX Forecasts: USD/JPY 2Q 142 (151), 1y 139 (147). EUR/USD 1y 1.16 (unchanged) with upside risk. EUR/CHF 2Q 0.92 (0.97), 4Q 0.91 (0.98). EUR/GBP 2Q 0.87 (0.85), 4Q 0.89 (0.87). USD/CAD 2Q 1.41 (1.45), 1y 1.38.
EM: USD/CNY 2Q 7.45 (7.30), 4Q 7.60 (7.40). EUR/PLN 4Q 4.30 (4.15). EUR/HUF 4Q 420 (400). USD/ZAR 4Q 20.50 (18.75). USD/MXN 4Q 20.00. USD/BRL 4Q 6.00

Another week, another walk-back on major trade policy. That avoids a worst-case of sorts, but damage has nevertheless been done and US / global recessions are still plausible. Through this, we retain our bearish-USD bias. The major news this week was the postponement of reciprocal tariffs, but keeping the 10% baseline tariff intact (ex-CA/MX) and raising tariffs on China materially higher. Just a week ago, following Liberation Day, JPM made a US recession our base-case alongside a 60% probability that a global recession would follow suit." 

Goldman Sachs: "USD: Rates up, Dollar down? That’s not exceptional. Last week, we revised our Dollar outlook as we flipped our view about how tariffs would impact the currency, and developments since then have raised our conviction in this view. Specifically, we think that the design and implementation of these tariffs should have a negative impact on the currency because they have contributed to eroding consumer and business confidence, and the broad tariff enactment makes it more likely that US business and consumers will become price-takers. We have previously argued that exceptional US asset return prospects are responsible for the Dollar’s strong valuation. But, if tariffs weigh on US firms’ profit margins and US consumers' real incomes, like we think they will, they can erode that exceptionalism and, in turn, crack the central pillar of the strong Dollar. The clearest near-term risk to this view is disruptive market moves that are typically associated with a “dash for Dollars.” The 90-day “pause” has mitigated that risk somewhat, and even made the path to Dollar depreciation a little wider as the looming deadline cements the tariffs’ role in elevated uncertainty. By avoiding some of the most punitive new tariff measures for now, investors are likely to feel more confident in Dollar shorts as the economic outlook looks dim but not dark. In addition, it is actually instructive that, despite record-breaking market moves, there have been few signs of Dollar funding stress. At least so far, this has not been a market that is scrambling for Dollars—if anything, it is the opposite. The recent breakdown in usual correlations is a clear signal that markets are concerned about what recent policy actions imply about US governance and institutional credibility, and the confluence of a steepening curve, lower equities and a weaker dollar point to worrying parallels to the UK in late 2022. If it continues, fresh policy action would likely be required to restore market confidence. Some of the adjustments to narrow tariff negotiations and emphasize forthcoming fiscal support and clarity are a step in this direction, but so far do not change our framework."