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The Dollar Finds its Mojo as Trump Hits China with Tariffs

By:
Bob Mason
Published: Jun 15, 2018, 07:23 UTC

The markets were mixed through the early part of the day, the introduction of tariffs having a mixed impact on the markets, with the Yen finding little support ahead of what will likely be a noisy day ahead for the Oval Office.

US Dollar

Earlier in the Day:

Key stats through the Asian session were on the lighter side this morning, with New Zealand’s May business PMI number there for the markets to consider ahead of the BoJ’s interest rate decision, press conference and release of their policy statement.

For the Kiwi Dollar, May’s business PMI slipped from 58.9 to 54.5, the PMI still the 3rd largest over the last 6-months in spite of the 4.6 point fall.

Looking at the sub-indexes,

  • The sub-index for employment fell from 59.1 to 49.8, the only sub-index to go into contraction in May, while the rest of the sub-indexes saw a pullback in the month.
  • The production sub-index eased from 60.4 to 53.7, with the new orders sub-index easing from 60.2 to 56.7.

While the PMI took a heavy hit, supporting moderate expansion across the manufacturing sector, the PMI remained above the long run average.

The Kiwi Dollar moved from $0.69698 to $0.69742 upon release of the figures, the stats having a relatively muted impact in the early hours of the day, before sliding by 0.46% to $0.6945 at the time of writing.

For the Japanese Yen, the BoJ held rates unchanged as expected ahead of the press conference that will be the main event, though following the 1st quarter contraction and some mixed stats going into the 2nd, there’s unlikely to be too much hawkish chatter.

At the time of writing, the Japanese Yen was down 0.18% to ¥110.83 against the U.S Dollar, with the markets seemingly shrugging off the introduction of tariffs on imports from China.

In the equity markets, the ASX rallied 1.29%, the big-4 banks amongst the high risers, with the Nikkei closing out the day with a 0.50% gain, while the Hang Seng and CSI300 were down 0.05% and 0.49% respectively, the introduction of tariffs weighing, with the markets now looking for China’s response.

The Day Ahead:

For the EUR, stats through the morning include finalized May inflation figures out of Italy and the Eurozone, along with the Eurozone’s 1st quarter wage growth figures and April trade data.

Following the ECB’s dovish forward guidance on policy that removed any hopes of a shift in policy towards deposit and interest rates through the remainder of the year, this morning’s inflation figures would need to be spectacular for the EUR to respond, with trade and wage figures unlikely to be particularly impressive.

At the time of writing, the EUR was down 0.1% at $1.1556, monetary policy divergence having done the damage on Thursday, with little to support the chances of a rebound through the day.

For the Pound, there are no material stats scheduled for release following a busy week, with Thursday’s Royal Wedding fuelled retail sales figures having done very little to shift sentiment towards the UK economy and monetary policy.

Brexit continues to be an issue for the Pound and will ultimately be the key driver near-term, the BoE unlikely to make a move should negotiations be going against the British PM and the UK.

At the time of writing, the Pound was down 0.20% to $1.3235, with Brexit chatter the key driver through the day.

Across the Pond, stats out of the U.S include June’s NY Empire State Manufacturing Index figures, May’s industrial production numbers and prelim June consumer sentiment figures. While the manufacturing and industrial production figures are forecasted to be on the softer side, a pickup in consumer sentiment in June will likely provide further support for the Dollar through the U.S session, though the markets will be looking for direction from the Oval Office on trade tariffs.

At the time of writing, the Dollar Spot Index was up 0.11% to 94.987, with the latest stats out of the U.S impressing once more, while the U.S administration goes about its business to rebalance the power of trade.

Across the border, the Loonie is in action, with April’s foreign securities purchases and manufacturing sales figures scheduled for release this afternoon.

While the stats will provide some direction, the Loonie will unlikely hold on to any immediate gains should the numbers be positive, with the pressure of an imminent trade war with the U.S and introduction of tariffs on China having done the damage early on.

At the time of writing, the Loonie was down 0.35% to $1.3151, with more losses to come should the U.S administration target Canada next.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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