Asia Open: Tariff risks delayed, US dollar dips

Reciprocal tariff risks delayed for now

Markets found a renewed sense of relief overnight, as initial worries over the implementation of US reciprocal tariffs this week did not materialise. Instead, US President Donald Trump opted for more time to kickstart an investigation into the levies imposed on US goods by other trading partners before formulating a response. Such dynamics seems different from the “strike first, talk later” approach seen in the 2018 trade war, with his renewed strategy offering trading partners some runway for negotiations and room for consensus to be reached.

The recent talks between India and the US highlight the potential for cooperation, with commitments on defense and energy purchases aimed at reducing the trade deficit. These agreements, along with impending trade deals, could set a precedent for other countries to follow suit and warm up to the US.

The delay in tariff risks offered a lift to US equity markets overnight (DJIA +0.77%, S&P 500 +1.04%, Nasdaq +1.50%). The US dollar dipped 0.8% given its sensitivity to tariff developments, while Treasury yields retreated from its post-consumer price index (CPI) spike. Overnight, US headline producer prices were generally taken in stride as key pricing components feeding into the core Personal Consumption Expenditures (PCE) price index signalled little cause for concern and minimal need for adjustments to current rate expectations.

Asia Open

The Asian session saw a general drift higher, with the ASX +0.53%, NZX + 0.45% and KOSPI +0.27% at the time of writing. However, Japan’s Nikkei (-0.32%) lagged, likely pressured by a stronger yen. There are much tailwinds for risk sentiments in the region to tap on, with the positive handover in Wall Street, weaker US dollar and lower Treasury yields. The breakdown of the US dollar below a key trendline support puts a near-term bearish trend in place for now, suggesting room for the recent retracement to extend further.

Aside, the USD/JPY looks on track to follow through with its near-term lower-high narrative, as the pair retreated from a downward trendline resistance around the 154.84 level. Its daily relative strength index (RSI) has struggled to cross above its midline following a retest. Ahead, sellers may set its sight on the 151.96 level of support next, before eyeing for the 149.11 level where a lower trendline support stands. Tariff delays may offer room for positive trade developments, which may weigh on the US dollar, while strong US inflation data have been shrugged off for now.

The AUD/USD has also found room for some recovery, following through with a bullish divergence on RSI while its daily moving average convergence/divergence (MACD) heads into positive territory. Buyers may eye for the 0.640 level, where a horizontal support-turned-resistance stands. While tariff relief offers some near-term upside, a sustained reversal of the broader downtrend still needs conviction, especially given the pair’s sensitivity to China’s economy, which remains highly vulnerable to US trade actions.