The value of US dollar in the Forex market shot up significantly on Friday last week following Trump’s reported move to direct aides to proceed with imposing tariffs on China.
This is despite attempts by Treasury Secretary Steven Mnuchin, to restart talks with China on the matter. That led to the rise of the US dollar index by 0.38 percent to 94.89, further strengthening the greenback against its six major rival currencies and stirring the trade market heat map.
Trump, who had in June this year imposed 25 percent tariffs on $50 billion worth of Chinese goods, was planning to add tariffs on another $200 billion in goods for China. But the announcement for the additional tariffs has been delayed, with the administration considering revisions based on concerns raised by the public comments, Bloomberg reported, citing sources familiar with the matter.
The public comment period, which ended last week, was meant to allow the public look at the tariff that included a number of internet technology products, printed circuit boards and electronics as well as consumer goods like bicycles, handbags and furniture.
Aside from the $200 billion tariff on goods, Trump also said he had other tariffs on $267 billion in Chinese imports, which are ready to go on short notice if he so wants. The demand by the Trump administration is that China cuts its $375 billion trade surplus with the US, end policies targeting acquisition of US technologies and intellectual property as well as roll back high-tech industrial subsidies.
These trade wars have massively impacted the Forex market but in favor of US dollar. And the prospect of the US imposing trade penalties on Beijing has further endorsed the new demand position of the greenback, with traders seeming a bit more optimistic of US economy’s ability to weather a trade war storm, compared to its Chinese counterpart.
The trade war between US and China has disrupted the trade-war proxy AUD/JPY, causing to fall by 0.32 percent to 80.25. The Australian economy heavily relies on exporting raw materials (primarily metals), with a huge chunk going to China, accounting for about a third of Australia’s annual exports. So should the trade war be escalated and/or prolonged, the Australian economy will be one of the biggest losers.
Despite the Japanese Yan being risk-sensitive, it did not stun the dollar this week. The USD/JPY witnessed a shakeup, rising 0.09 percent to Y112.02.
The US dollar’s upward trend has been largely supported by revision of retail data sales for the month of July, signaling underlying consumer strength. According to the Commerce Department, retail sales edged up 0.1 percent on August, the smallest rise recorded since February. But July’s data print was revised to show 0.7 percent from the previously reported 0.5 percent. Retail sales, excluding autos, were also revised, resulting in a rise to 0.9 percent for the same month.
Despite the US dollar’s recent strength in the forex market, not everyone has received the upward trend with optimism and experts particularly have concerns about its midterm performance. Viraj Parej, an ING foreign exchange strategist, was keen to throw in his views on the matter. He says the political uncertainty over the midterm, considering the US twin deficits, could make the dollar’s value a ticking time bomb.
On the other hand, the USD dropped against the Great British Pound and the Euro. The GBP/USD fell 0.26 percent to $1.3074 while the EUR’/USD fell 0.46 percent to $1.1636. The loonie has recently come under pressure amid the fading hope of US and Canada penning a trade agreement. That’s clearly shown in the USD/CAD that rose 0.33 percent to C$1.3040.
The U.S. -China trade spat will likely continue to be the key driver of sentiment in the week(s) ahead, even with the simmering reports of Trump going ahead to implement the $200 billion tariff on Chinese goods. Neither of the sides is showing signs of backing down and that’s deepening the worries of the two of world’s most powerful economies getting into a trade war that could disturb the global economy.
Is the trade war between US and China ending soon even as close administration figures of the two administrations push for talks? And will the USD maintain still maintain its strength in the trade market this week? Well, it’s a wait-and-see.