No Tariffs for You!

May 29, 2025
6 min read
  • The US court ruling blocking some tariffs is a significant check on executive power in trade policy. The Trump administration has a few paths to sidestep the ruling.
  • The FOMC May 6-7 meeting minutes spotlight worry over the April market swings.
  • The are no policy relevant G10 economic data releases today. SARB is expected to cut rates 25bps to 7.25%.

No Tariffs for You!

US

USD and US stocks rallied after the US Court of International Trade ruled that President Donald Trump's “liberation day” tariff scheme was unlawful. The court rejected the president’s claim that economic issues justified the use of the International Emergency Economic Powers Act to impose broad tariffs. The order applies to Trump’s global flat tariff, elevated rates on China and others, and his fentanyl-related tariffs on China, Canada and Mexico (Bloomberg Finance LP).

The Trump administration has already filed a notice of appeal. In the meantime, the ruling permanently blocks the tariffs unless the appeals court allows Trump to reinstate them during litigation. The Trump administration could also seek alternative legal justification to unilaterally impose the tariffs or engage with Congress. Under the US constitution, Congress has the power to set tariffs. Bottom line: the ruling is seen as a significant check on executive power in trade policy and is fueling a broad rally in risk assets.

The FOMC May 7 meeting minutes spotlight concern over the market turmoil following the “liberation day” tariff announcements on April 2. “Some participants commented on a change from the typical pattern of correlations across asset prices during the first half of April, with longer-term Treasury yields rising and the dollar depreciating despite the decline in the prices of equities and other risky assets. These participants noted that a durable shift in such correlations or a diminution of the perceived safe-haven status of U.S. assets could have long-lasting implications for the economy.” Indeed, US policymaking credibility is taking a big hit as reflected by the recent divergence in the dollar and interest rate differentials.

Overall, the fundamental backdrop remains difficult for USD for three reasons: (i) the Trump administration implicitly supports a weaker dollar, (ii) the US economy faces stagflation risk, and (iii) confidence in US trade, fiscal, and security policies has been shaken.

Second-tier US economic data are due today. Fed speakers include: Richmond Fed President Tom Barkin (non-voter) (1:30pm London), Chicago Fed President Austan Goolsbee (voter) (3:40pm London), Fed Governor Adriana Kugler (7:00pm London), and San Francisco Fed President Mary Daly (non-voter) (9:00pm London).

AUSTRALIA

AUD/USD is holding above key support at 0.6400 but faces near-term resistance between 0.6500-0.6540. Australia private new capital expenditure (capex) unexpectedly contracted over Q1. Capex fell -0.1% q/q (consensus: 0.5%) vs. 0.2% in 4Q (revised up from -0.2%) driven by a -1.3% q/q decline in equipment, plant and machinery. Encouragingly, the second estimate for planned capex for 2025-26 was up 6.7% to A$95.6bn from the first estimate. RBA cash rate futures continue to price-in a total of 75bps of cuts to a low of 3.10% in the next 12 months.

NEW ZEALAND

NZD/USD is trading in the middle of a multi-week 0.5850-0.6030 range. The ANZ May business outlook survey was soft. Business confidence fell 12.7 points to a 10-month low at 36.6 in May, expected own activity fell 12.9 points to a 10-month low at 34.8, and reported past activity (the best GDP indicator) fell 6 points to 5.

Yesterday, the RBNZ cut the Official Cash Rate (OCR) by 25bps to 3.25% but signaled that the bar for more easing is high. In fact, Governor Christian Hawkesby stressed overnight that “when we next meet in July a further cut in the OCR is not a done deal…We’re really more in a phase where we are taking considered steps, data dependent.” The swaps market implies 30% odds of a July rate cut and the OCR to bottom at 3.00% over the next 6 months.

SOUTH AFRICA

South African Reserve Bank (SARB) is expected to cut rates 25bps to 7.25%. A few analysts polled by Bloomberg look for steady rates. At the last policy meeting March 20, the bank kept rates steady at 7.50%. Governor Kganyago said “The world economy is experiencing extreme levels of uncertainty… Globally we do not know where policy will end up.” Its model showed the policy rate at 7.25% for end-2025 and 7.21% for end-2026, which is slightly higher than market pricing for the policy rate bottoming near 7.00% over the next twelve months.

 


 

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