Aussie Plunges Amid Rumors of Tariffs Against China

The U.S. Dollar finished mixed against individual currencies last week, but because of the larger weighting of the Euro, the Greenback managed to post a small gain against the basket of currencies.

For the week, the June U.S. Dollar Index futures contract settled at 89.797, up 0.157 or 0.18%.

In economic news, U.S. consumer inflation came in at 0.2%, meeting expectations but coming in well below the previous 0.5%. Core CPI also matched the 0.2% forecast, but came in below the previously reported 0.3%. The benign numbers probably mean the Fed will limit the number of rate hikes in 2018 to three.

Core Retail Sales disappointed investors with a 0.2% reading. The forecast called for an increase of 0.4%. The previous month was revised higher to 0.1%. Retail Sales were down 0.1%. Traders were looking for 0.3%. The previous month was revised higher to -0.1%.

Producer inflation rose 0.2%, exceeding expectations. Building permits were 1.30M versus a 1.32M forecast.

EUR/USD

The Euro rallied early in the week after the release the neutral U.S. consumer inflation report. However, prices topped on Wednesday, March 14 and retreated the rest of the week after European Central Bank President Mario Draghi said that the bank’s policy will remain prudent despite it being more confident on the future path of inflation.

The EUR/USD settled at 1.2286, -0.0018 or -0.14%.

“We currently see inflation converging towards our aim over the medium term, and we are more confident than in the past this convergence will come to pass,” Draghi said at an event in Frankfurt.

“But we still need to see further evidence that inflation dynamics are moving in the right direction. So monetary policy will remain patient, persistent and prudent.”

Draghi also reiterated that rates will still remain low for a long time.

USD/JPY

The Dollar/Yen was pressured last week by political uncertainty in U.S. President Donald Trump’s cabinet and renewed worries about trade wars.

The USD/JPY settled at 105.952, down 0.851 or -0.80%.

Traders are concerned about a U.S. shift towards increased protectionism under the Trump administration, after the president sought to impose fresh tariffs on China.

The Yen was also supported by a political scandal in Japan which raised questions about the future of Prime Minister Shinzo Abe, leading investors to question the path of the currency. Abe risks losing both popularity and ultimately power. And without Abe, there might not be “Abenomics” to keep the Yen cheap.

AUD/USD

The Australian Dollar fell sharply against the U.S. Dollar last week amid concerns about a U.S. shift towards increased protectionism.

The AUD/USD settled at .7710, down 0.0136 or -1.73%.

The selling began after President Trump fired Secretary of State Rex Tillerson and rumors surfaced that Trump was considering tariffs against China. According to reports, the package could include indefinite tariffs and investment restrictions. Trump could impose tariffs on $60 billion of Chinese goods, Reuters reported, citing a source.

NZD/USD

The New Zealand Dollar plunged against the U.S. Dollar last week on rising risk aversion as investors expressed concerns about a possible trade war and more changes in the White House staff.

The NZD/USD settled at .7211, down 0.0067 or -0.93%.

The Kiwi was pressured late in the week by weaker than expected Gross Domestic Production data, which reduced the odds of a sooner-than-expected rate hike by the Reserve Bank of New Zealand and rumors that President Trump had decided to fire National Security Adviser H.R. McMaster.