Dollar holds gains as market awaits tariffs

It’s not will they or won’t they – it’s how much

The market appears resigned to the fact that US President is about to announce the next set of tariffs on $200 billion worth of Chinese imports. There are only two questions to be answered: when? Is it today, tomorrow or later this week? And what percentage? 10% or 25%?

The Wall Street Journal reported that the tariff level will be about 10%, below the 25% the US administration had been considering. The WSJ also reported that there is a growing risk that China would walk away from the proposed trade talks if the tariffs are imposed. After imposing their own retaliatory tariffs, of course.

The US dollar was steady in thin trade during the Asian session. With a Japan holiday and Hong Kong licking its wounds from the passing of typhoon Mangkhut, though financial markets were open, trading was lackluster at best.

USD/HKD gives 7.85 ceiling a breather

USD/HKD retreated from its 7.85 ceiling last week as the US dollar encountered some mild near-term selling pressure. The Hong Kong Monetary Authority has spent HKD95.63 billion ($12.2 billion) defending the upper band of its currency peg since April as the FX pair repeatedly tested the 7.85 level. General demand for the US dollar and outflows from its stock markets are to blame for the pressure. The HKMA commented this morning that it can better deal with any crisis better than in 1997 and 2007. USD/HKD is trading at 7.8578 today after touching 7.8460 on Friday, the lowest since July 26.

USD/HKD Daily Chart

Source: Oanda fxTrade

HKMA Intervention

Source: Bloomberg; Oanda

Euro-zone consumer prices on tap

It’s a slow start to the week on the data front too, with Euro-zone CPI data for August the major event on tap. Prices are seen rising 0.2% m/m and 2.0% y/y, according to the latest survey. Canadian flows data, foreign money into Canadian securities and Canadian money into foreign securities are the only other major data points for markets.

You can view the full MarketPulse data calendar at:

Source: MarketPulse

Trade Tensions Return as US Tariffs on China Lift Dollar

The dollar bounced back on Friday, after a couple of economic indicator misses this week, the greenback is higher against all major pairs. Major pairs and commodities are lower against the greenback ahead of the weekend. The American currency did not manage to overturn the losses posted during the rest of the week. On a weekly basis the USD is lower against all majors except the Japanese Yen.

A slowdown in the pace of inflation, miss in retail sales expectations and a softer tone on trade from the Trump administration were the three major factors for the softness of the currency.

Rate differentials also helping the USD. This week was mostly a non event for the Bank of England (BoE) and the European Central Bank (ECB). Although the Sept rate hike by the Fed is priced in, it also shows its the only economy with some momentum to even lift rates. Next up in the economic calendar are the Bank of Japan (BOJ) and the Swiss National Bank that are not expected to modify their monetary policies.

Euro Scored a Win on a Weekly Basis but Falls as Trade Tensions Rise

The escalation of trade tensions was a positive for the US dollar as investors sought a safe haven during times of uncertainty. As potential olive branches are put forward there is optimism that Canada will join the US-Mexico agreement and talks with China could lead to closing the gap between the two points of view on trade. US President Trump tweeted on Friday that the a meeting with China is no guarantee of anything and reports in the media suggest the $200 billion US tariffs are still on the table.

A September rate hike is still fully priced in, but the inflation and retail sales miss did slim down the probabilities of a follow up rate hike in December.

The American economic calendar is short on blockbuster releases with Washington development to guide markets as trade tensions have eased, but are far from resolved.

The euro rose almost 1 percent this week with risk appetite returning to markets and strong wage growth in Europe. The European Central Bank (ECB) did as expected and held rates signalling that it will end its QE program at the end of the year and continued to maintain interest rates low through the 2019 summer.

Investors were not given any new information and instead bought the currency on improved international trade environment. The olive branches are just now entering the picture, and ECB economists could not have predicted the timing as they also announced a downgrade of their economic projections, citing trade worries.

Upcoming European inflation along with service and manufacturing PMIs will bookend the economic calendar in the EU. The gap between interest rates will continue to grow as the U.S. Federal Reserve pushes on its tightening policies as growth fails to spark momentum in Europe.

Fed rate hikes are priced in into the USD, but signs of European slowdown or the US economy hitting a higher gear could be a gift for dollar bulls.

Canadian Dollar Awaits News on NAFTA as US Gets Tough on China

The Canadian dollar fell on Friday. After the Trump administration softened its stance on international trade, in particular by reopening trade talks with China, NAFTA optimism boosted the loonie. Traders did not feel confident in carrying over short dollar positions into the weekend and the greenback saw a recovery on Friday.

Canadian dollar weekly graph September 10, 2018

The loonie advanced 1 percent during the week and next week’s inflation and retail sales data on Friday are crucial for the fate of a Bank of Canada (BoC) interest rate hike. NAFTA headlines will roll in as the team of negotiations get back to work with the aim to add Canada to to US-Mexico agreement.

Expectations are mixed on NAFTA, as Canada seems ready to make concessions on dairy but the US and Mexico continue to press for a trilateral deal while also adding they are ready to forge ahead if its only a bilateral one.

China Tariffs Cap Rise of Oil as Growth Concerns Hit Commodities

Oil fell 0.35 percent on Friday compounding on losses seen on Thursday, but will head into the weekend with a 1.09 percent gain. Supply disruptions have lifted prices after the 2014, be it the Organization of the Petroleum Exporting Countries (OPEC) and major producers agreement to limit their output to weather and geopolitical disputes.

Hurricane Florence in the US was downgraded and with it the negative short term effect on potential disruptions. IEA reported today that OPEC is starting to ramp up production by 420,000 daily barrels more than making up for the impact that the sanctions on Iranian exports will have on supply.

Global demand for crude has not shown signs of recovery and if producers start pumping there is a risk that oversupply could once again bring instability to oil prices.

Geopolitical factors like the US-China trade tensions will continue to put downward pressure on crude prices as higher levels of protectionist measures tend to slow down global growth.

Yellow Metal Falls as Risk Aversion and Fed Rate Hikes Advance

Gold fell 0.46 on Friday after a bounce in the US dollar at the end of the week. Risk aversion has been the main dollar of US strength as trade war concerns could have a deep impact in global growth. Commodities have recovered this week after the Trump administration has softened its tough stance with China with bilateral talks to restart in a couple of weeks.

Friday’s move is also explained by investors limiting their exposures as the weekend approaches, given that geopolitical risk could rise at any moment. The move gave some breathing room to the greenback as it is on its way to erase the majority of its losses against the yellow metal.

China’s yuan extends gains after PBOC measures on Friday

Costs to go short yuan increase

News late Friday that the PBOC was imposing a reserve requirement of 20% on some trading of foreign-exchange forwards, effective today, saw the Chinese currency rally strongly versus the US dollar, and the yuan continued this trend during today’s Asian session. The introduction of new measures effectively makes it more expensive to short the yuan, which was one of the popular trades to play out the escalating trade tariff war between the US and China.

Also adding to the capping effect on the USD/CNH pair, local financial press have been referring to comments from an unnamed PBOC advisor, though they were made early-July, that the yuan would not drop past 7.00 to the US dollar and that China would probably not want to see it below 6.90. The high for USD/CNH on Friday was 6.9124 ahead of the PBOC’s announcement. The pair is currently trading at 6.8409.

USD/CNH Daily Chart

Source: Oanda fxTrade

US Dollar starts to recoup some of payroll losses

The US dollar weakened on Friday as US nonfarm payrolls rose a disappointing 157,000 in July, below analysts’ estimates of a 190.000 gain. A net upward revision to data from May and June took some of the sting out of weaker headline number and bulls will no doubt focus on the improvement to the unemployment rate to 3.9%. The dollar’s decline was the first in five days but the greenback still managed to rally on the week. 10-year US Treasury yields eased back from just above 3.0% after the data which helped pressure the dollar lower.

US Dollar Takes NFP Hit But Ends Up Higher on the Week

China responds with its own tariff list

China released a list of $60 billion worth of US goods that it intends to hit with tariffs, in retaliation for the US administration’s plan to impose duties on $200 billion in Chinese imports. It has also implied that it is considering placing a 25% import tariff on US natural gas imports. Meanwhile, US President Trump said that the US has the upper hand in the tariff battle and, as a result of the tariffs, should be able to start paying back some of the $21 trillion in debt which has been amassed.

German factory orders on tap

It is a slow start to the week on the data front, with German factory orders and Eurozone investor confidence the only major releases scheduled. Things pick from tomorrow with the RBA rate meeting (though no change expected this year or even next) while China’s July trade data on Wednesday may start to show the impact of trade tariffs. Japan’s Q2 GDP data on Friday is expected to show an improvement from Q1’s contraction while US inflation data rounds off the week.

For a look at all of today’s economic events, check out our economic calendar.

Equities shrug off trade tariff tensions

Is the negotiating table being dusted off?

Was it a storm in teacup? Equity markets across Asia shrugged off yesterday’s post-tariff announcement weakness and are trading in the black through the Asian session. Nikkei225 rose 0.95%, Australian stocks rose 0.68% and even China shares managed gains of 2.30%, recouping all of yesterday’s losses. What has caused this shift in sentiment? Well, China’s Vice Minister of Commerce, Wang Shouwen, urged his US counterparts to resolve the current conflict with a new round of bilateral negotiations. Early murmurings from the US administration could imply that they are amenable to a resumption of talks at a high level, Bloomberg reports.

A tenuous and unstable state of affairs

Currencies lag behind

Currency pairs have halted the risk-off trend started yesterday but have yet to reverse yesterday’s moves to any degree. USD/CNH is posting its first down day in three, but so far has only managed a slide of 0.59% while AUD/USD has recovered 0.28% on the day.

AUD/USD Daily Chart

Source: Oanda fxTrade

US inflation data in the headlights

Today’s data calendar is a mixed bag, with German CPI for June kicking off the European session followed by Euro-zone industrial production for May. Inflation is seen holding steady with the increase expected to be the same as May, up 0.1% m/m and up 2.1% y/y. Factory output is expected to rebound from April’s slump, seen rising 1.2% m/m and 2.1% y/y.

US June consumer prices are seen rising 0.2% m/m and 2.9% y/y while core prices, excluding food and energy are forecast to gain 0.2% m/m and 2.9% y/y. Given that the Fed has said recently that it will not overreact if prices stray above their medium target in the near term, it would require a number significantly different from estimate to provoke a meaningful market reaction.

You can access the full data calendar on MarketPulse at

Bank of Canada hikes rates with hawkish outlook

Investors turn risk-averse on tariff war escalation

US announces list of next tariff targets

The US close was looking hunky dory, with equity markets aiming for a higher close as there appeared to be a lull in trade war rhetoric, once the first salvos had been fired last weekend. Then BOOM! Headlines that the US was set to announce the list of the next $200 billion worth of Chinese goods targeted for a 10% tariff hit the wires. Once the contents of the list were known, the sour tone intensified as a general risk-averse mood permeated through markets during the Asian session.

News reports say the list runs to more than 200 pages and refers to goods from TV components, food products, tobacco, raw materials and even badger hair! The tariffs are scheduled to be implemented after public consultations end on August 30. Bloomberg also notes that China only imports about $136 billion worth of US goods, so it could be interesting to see how countermeasures match up. The only reaction from China so far has been from the Ministry of Commerce which stated the latest round of tariffs interferes with the globalization of the world economy and harms the WTO trade order. It reiterated that cooperation is the only correct choice for US-China relations, though vowed to roll out a response.

When the going gets tough, the tough get going

Equities and yuan suffer

In reaction, the Nikkei225 fell up to 1.86% while China shares slumped as much as 2.76%, as investors once again tried to gauge the true impact on the Chinese economy and companies. In the currency space, the yen was bid, rising 0.69% versus the AUD, 0.07% versus the EUR and 0.05% against the pound. It did, however fail to gain ground against the dollar. The offshore yuan was under pressure the whole session, falling as much as 0.63% versus the dollar to hit 6.69190.

NOTE: Last time the offshore yuan weakened through 6.70, on July 3, the PBOC stepped up its comments on the tools it has to adjust policy

Aussie data ignored

Australian data releases were generally positive. The Westpac consumer confidence index jumped 3.9% in July, home loans rebounded in May, signaling the first growth in six months while home loans for investment purposes fell a less-than-expected 0.1%. The good data couldn’t help the local dollar which was caught up in the broader risk-averse trade. AUD/USD is down 0.72% at 0.7405 having failed to penetrate the 0.75 handle in the previous two sessions.

AUD/USD Daily Chart

Source: Oanda fxTrade

Bank of Canada decision on the radar

The highlight of today’s data calendar will likely be the Bank of Canada rate decision where market consensus is that the central bank will hike rates for the first time in four meetings as it seeks to close the rate gap with the Fed. Expectations are for a 25bps increase to 1.50%. The press conference will be monitored for hints on future guidance on rate trajectory. USD/CAD is currently at 1.31366.

Bank of Canada Expected to Hike on Wednesday

Other data bites include speeches from ECB’s Draghi, Praet and Mersch, US producer prices for June and wholesale inventories for May. Speeches continue later in the day with BOE’s Carney and Fed’s Bostic and Williams all on tap.

You can access the full data calendar on MarketPulse at

Oanda Live FX Market Analysis