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Currency war vs Trade war

Published July 23, 2018

Author: Dennis Li

We start this week almost where we started last week with the AUD back above 0.7400 yet again after experiencing the sharp, yet confined volatility on Friday that we spoke about earlier last week. After testing support at 0.7316, the Australian dollar rallied back through 0.7400 as the greenback fell on US President Trump’s threat to impose tariffs on all $500 billion worth of goods from China. Along with his regular complaints about rising interest rates and the strength of the USD, he accused China and the EU of manipulating their currencies.

The Japanese yen also had its best daily performance in last two months, 1.1% up against the USD on Trump’s comments. The annual CPI data on Friday saw a 0.8% increase which was due largely to recent gains in oil costs with prices of other goods barely picking up. The data reinforces market expectation that the BOJ will cut its inflation forecasts in its rate review on July 30-31. AUDJPY had little movement over the weekend.

The UK Prime Minister Theresa May’s Brexit plans were overwhelmingly opposed by the British public and more than a third of voters would support a new right-wing political party committed to quitting the bloc. With a little more than eight months to go, May’s government, parliament, the public and the businesses still remain deeply divided over what form Brexit should take. The sterling was up by 1.13% against the USD while AUDGBP was testing the mid 0.5600 level.

Oil was up above $70 per barrel on Friday with lower-than-expected crude exports from Saudi Arabia which offset concerns about Sino-US trade tensions and supply increases.

In the G20 meeting held last Saturday in Buenos Aires, finance leaders from 20 major economies shared their concerns over the escalating global trade friction and called for more talk. U.S. Treasury Secretary Steve Mnuchin has sought to use the meeting to woo Europe and Japan with the offer of free-trade deals, trying to gain leverage with allies in its dispute with China.

With less data coming out this week, investors will keep their eyes on the Aussie CPI data on Wednesday 25th July and the EU Rate decision on Thursday 26th July.