Trump’s Actions Weakened U.S. Dollar Last Week

The March U.S. Dollar Index went for a ride last week with the futures contract posting a two-sided trade before settling lower for the week. The market closed at 100.526, down 0.164 or -0.16%.

Traders had a mixed opinion about the dollar at the start of the week because previous comments earlier in the year from President Trump and Fed Chair Janet Yellen contradicted the idea that rising interest rates would keep upward pressure on the dollar. Trump felt that the U.S. had lost its competitive advantage to China because the dollar was “too strong”. However, Yellen drove the dollar higher by supporting the idea of three rate hikes in 2017 then the next day saying that the Fed would raise rates gradually.

Dollar traders received a little more clarity last week by the actions of Trump. Firstly, he withdrew the U.S. from the Trans-Pacific Partnership and said he would renegotiate NAFTA. Then he told CEO’s that he would charge a tariff on goods coming from foreign countries produced by U.S. companies. Finally, he said he would build a wall between the U.S.-Mexican border for security purposes and charge higher tariffs to pay for it.

All of these actions had investors thinking U.S. protectionism and a possible trade war. Dollar investors ignored rising U.S. stocks and interest rates and instead pressured the dollar because they believe that by Trump’s actions, he wants to see a weaker dollar to drive more business to the U.S.

In U.S. economic news, Fourth-quarter Advance GDP came in below expectations at 1.9% and Durable Goods Orders dropped 0.4%.

AUD/USD

The AUD/USD closed slightly lower last week at .7546, down 0.0006 or -0.08%. The catalyst behind the selling pressure was a weaker-than-expected quarterly Consumer Inflation report. The CPI came in at 0.5%, below the previous and estimated 0.7%.

The Aussie weakened because the weak report raised the possibility the Reserve Bank of Australia would have to cut interest rates sooner than expected in 2017.

NZD/USD

Inflation figures also affected the New Zealand Dollar, but in the opposite direction. The NZD/USD closed at .7261, up 0.0097 or 1.35%. It was supported by a CPI report that showed a reading of 0.4%, higher than the 0.3% estimate and previous reading.

USD/JPY

The USD/JPY picked up some of its lost ground with a close at 115.047, up 0.514 or +0.45%. The trade was volatile at times however.

Pressuring the Dollar/Yen were concerns over a possible trade war because Trump was doing and saying all he could to drive the U.S. Dollar lower.

However, when the dust cleared, the carry trade was the big winner. Sharply higher U.S. equity markets drove investors into higher yielding assets like stocks and bonds while pressuring the lower-yielding or safe-haven Japanese Yen.