CURRENCIES: Dollar Punches Higher Amid Renewed Trump Tariff Angst
July 11 2018 - 5:36PM
Dow Jones News
By Mark DeCambre, MarketWatch , Rachel Koning Beals
Loonie loses momentum after Bank of Canada emphasizes gradual
rate-hike path
The U.S. dollar strengthened broadly against most of its major
rivals Wednesday following fresh consternation over President
Donald Trump's clashes with major trading partners and allies
across the globe.
The U.S. late Tuesday said it would assess 10% tariffs on a
further $200 billion in Chinese goods
(http://www.marketwatch.com/story/us-readying-new-tariffs-on-up-to-200-billion-of-chinese-goods-2018-07-10).
The move is seen as exacerbating tensions with Beijing and sending
a message to other trading partners that the U.S. won't back down
in a trade fight. A final decision on the products to be hit with
the new tariffs is expected after a consultation period in late
August, but the latest move further highlights Trump's
protectionist trade posture that has rattled global markets and
driven investors to the perceived safety of U.S. dollar.
The buck, as measured by the ICE Dollar Index, which gauges the
U.S. unit against six currencies, climbed by 0.6% to 94.728, with
investors reacting after a reading of inflation was released
Wednesday morning and after a report by Reuters suggested that
policy makers at the European Central Bank are mixed about the
timing of a possible rate-hike next year
(https://www.reuters.com/article/us-ecb-policy-rates/ecb-policymakers-split-on-meaning-of-through-summer-and-on-timing-of-rate-hike-idUSKBN1K11OU).
Producer-prices for June showed that the wholesale cost of goods
and services rose at the highest yearly rate in almost seven years,
reflecting broad inflationary pressures in a fast-growing U.S.
economy. The producer-price index
(http://www.marketwatch.com/story/wholesale-inflation-hits-highest-level-since-2011-ppi-shows-2018-07-11)
increased 0.3% on the month. Separately, wholesale inventories rose
0.6% in May.
Still, the U.S. monetary unit has drawn more haven-like demand
amid the trade-war strife, compared against currencies viewed as
traditional safety plays, including the Japanese yen and the Swiss
franc.
"The market still sees the U.S. in the position of power, given
where the U.S. is with its economic cycle and where the [Federal
Reserve] is" with interest-rate hikes, said Omer Esiner, chief
market strategist for Commonwealth FX.
Investors see the dollar as "probably better positioned to
withstand sustained disruptions to global trade," Esiner said.
Specifically, the dollar strengthened against Japan's yen,
viewed as a haven in periods of economic uncertainty. The U.S.
currency bought Yen111.99 Japanese yen up firmly from around
Yen111.00 late Tuesday in New York.
Another currency viewed as a haven, the Swiss franc pulled back,
with the dollar buying 0.9958 Swiss franc , compared with 0.9919 in
the previous session, with the buck gaining 0.4%.
The greenback rose against both the onshore and offshore yuan,
the latter of which trades more freely outside of China. The dollar
jumped 0.8% at 6.6809 yuan in onshore trading, compared with 6.6317
late Tuesday. The offshore currency was quoted at 6.7235 yuan,
leaving the dollar up also around 1.1% and near its highest levels
since 2017 against the Asian currencies.
Fawad Razaqzada, market analyst at Forex.com, said a
full-fledged trade war may force the Fed to lift interest rates at
a faster pace than it would prefer to combat rising prices and
inflation. "Global stock index futures and the yuan slumped, while
the U.S. dollar appreciated on assumption that the Federal Reserve
will have to raise interest rates more aggressively to counter the
increase in the price of goods and services in the U.S. as a result
of the tariffs," he wrote in Wednesday note.
Meanwhile, Canada's loonie lost altitude against the U.S. dollar
after the country's central bank lifted key interest rates, as had
been widely expected. Policy makers cited upbeat domestic economic
data despite worries on trade and stalled negotiations of the North
American Free Trade Agreement with trading allies Mexico and the
U.S.
The loonie had been gaining against the buck immediately after
the Bank of Canada hiked interest rates to 1.5% from 1.25%
(http://www.marketwatch.com/story/canadas-loonie-climbs-against-the-buck-as-boc-hikes-benchmark-rates-2018-07-11)
but pulled back as the BOC emphasized a gradual approach to future
monetary tightening, citing tariff-related concerns. "While
investment and trade are projected to expand, they are being
restrained by the U.S. tariffs recently imposed on Canadian steel
and aluminum imports and by uncertainty around trade policies." the
BOC said in a statement Wednesday.
One U.S. dollar last bought C$1.3212 of the Canadian currency on
Wednesday, from C$1.3114 late Tuesday in New York, a gain of
roughly 0.7%.
Separately, the Australian dollar, which functions as a proxy
for Asia-Pacific currencies, also sold off amid trade tensions. The
the Aussie weakened sharply against its U.S. counterpart, with the
Australian unit buying 0.7370 U.S. cents, compared with 0.7459 late
Tuesday in New York, down about 1.2%.
(END) Dow Jones Newswires
July 11, 2018 17:21 ET (21:21 GMT)
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