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Trump Hits the Markets Driving Demand for Dollar and the Yen

By:
Bob Mason
Published: Jun 19, 2018, 08:02 UTC

The global financial markets responded to tariffs on $200bn worth of China imports into the U.S and China's promise to respond, both sides seemingly unwilling to back down. If Trump wanted a weak Dollar, a trade war is not the way.

Risk Stop Sign

Earlier in the Day:

Key data released through the Asian session this morning was limited to 1st quarter house price figures out of Australia, which were released alongside the RBA meeting minutes.

For the Aussie Dollar, house prices fell by 0.7% in the 1st quarter, reversing most of the 4th quarter of 2017’s 1% rise, according to figures released by the ABS.

Falling house prices in Sydney and Melbourne were attributed to the 1st quarter decline, prices falling by 1.2% and 0.6% respectively, Melbourne’s fall the first quarterly decline since September quarter 2012, while Sydney house prices fell for a 3rd consecutive quarter, leading to the first annual fall in house prices since March quarter 2012.

In spite of the weak numbers, focus was ultimately on the RBA meeting minutes, which were more dovish than had been anticipated.

Following forward guidance in the May minutes that rates would likely go up, rather than down, the June minutes had removed the forward guidance, suggesting that there was some uncertainty ahead, with the RBA noting that inflation remained low and was likely to remain so for some time, reflecting slow growth in labour costs and strong competition in the retail sector.

The Aussie Dollar moved from $0.74167 to $0.74246 upon release of the figures, before sliding to $0.7357 at the time of writing, down 0.89% for the session.

Elsewhere, the Japanese Yen was up 0.74% to ¥109.73 against the U.S Dollar, while the Kiwi Dollar also saw heavy losses, down 0.72% to $0.6892, as the markets responded to Trump’s threat of an additional $200bn in tariffs on imports from China, the expectation of a response to China’s weekend move being met on Monday.

In the equity markets, the risk off sentiment was reflected across the majors, the CSI300 and Hang Seng leading the slide at the time of writing, the pair down 3.53% and 3.19% respectively, with the Nikkei closing the day down 1.77%. For the ASX200 the response was somewhat more muted, the index ending the day down just 0.03%.

In response to Trump’s retaliation, China has promised to respond to the additional $200bn in what is looking more like a trade war than mere posturing and that’s never good for the markets.

The Day Ahead:

For the EUR, it’s another quiet day on the data front, leaving ECB commentary to provide direction, though it’s not just monetary policy that’s going to drive the EUR through the day, the reality of a trade war between the U.S and China hitting the markets hard. With the EU likely to be next on Trump’s list of targets, the EUR is going to be under significant pressure and could see more heavy declines should the U.S administration begin threatening the EU.

At the time of writing, the EUR was down 0.34% to $1.1584, the threat of trade tariffs hitting the EUR through the morning session, with even Draghi, scheduled to speak this morning, unlikely to be able to shift sentiment.

For the Pound, there are no stats scheduled for release ahead of Thursday’s BoE monetary policy meeting, leaving Brexit chatter and the current flight to safety to provide direction through the day, the BoE unlikely to be talking up rate hikes with a possible trade war between China and the U.S threatening the global economy.

At the time of writing, the Pound was down 0.28% to $1.3207, the Pound finding much needed support at $1.32 in the early part of the day.

Across the Pond, key stats through the day are limited to May’s building permit and housing start figures that are unlikely to have too much influence on the Dollar this afternoon, the markets likely to continue responding to the trade war chatter between the U.S and China that could unravel the global economy should both sides carry out their treats on tariffs.

The flight to safety, in response to Trump’s threat of an additional $200bn and China’s promise to respond, saw the Dollar rally through the morning, the Dollar Spot Index up 0.17% to 94.937, with 95 levels on the cards should the flight to safety persist through the afternoon.

Outside of the data and the noise from the Oval Office, FOMC member Bullard is scheduled to speak and, while any dovish commentary could slow the upward moves in the Dollar, trade wars would most certainly overshadow any chatter on monetary policy.

Across the border, the Loonie pulled back to C$1.32 levels on Monday in response to the trade tariff moves by the U.S and China, with the threat of more from both sides leading the Loonie deeper into the red for the week, the markets all too aware of Trump’s sentiment towards Canada’s trade terms with the U.S.

At the time of writing, the Loonie was down 0.18% to C$1.3226 against the U.S Dollar, with direction through the day in the hands of the Oval Office.

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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