Safe haven currencies gain after Trump threatens an increase in Chinese tariffs
May 6, 2019
Equity markets around the world get slammed after Trump doubled down on tariffs against China. The US dollar is up while the Japanese yen is much stronger on safe-haven buying. The Chinese renminbi initially sank almost 1% but is now down a half-percent. The UK pound gave back half its gains from Friday. Uncertainty is roaring back today with a 40% spike in the VIX equity volatility index to over 18.
Tuesday: Consumer Credit
May 6, 2019
EUR/USD 1.1189 GBP/USD 1.3093 USD/CAD 1.3477 AUD/USD 0.6989 USD/JPY 110.90 USD/CNH 6.7843 USD/ILS 3.5896 USD/MXN 19.0240 USD/CHF 1.0194 USD/INR 69.4050
The dollar is stronger as global financial markets shift in the wake of Trump's tariff threat. To increase pressure on the Chinese, Trump tweeted a threat to increase tariffs on Chinese goods from 10% to 25% by this Friday. Trump claimed trade discussions were going too slowly, but the US also seemed to cave last week on some key demands. Perhaps Trump felt he was losing the upper hand – especially after North Korea fired some smaller missiles into the sea this past Saturday.GBP
The pound gave back roughly half its gains from Friday after comments on Brexit from Labor and Tories threw cold water on the prospects of a deal. Last week the pound had gained almost 2% on comments from Bank of England that interest rates would likely need to rise if Brexit gets resolved.EUR
The euro began the trading session weaker as the markets reacted to re-emergence of the US/China trade war. The common currency tried to rally on positive PMI and Retail Sales data, but gave back those gains. The overall trend for the euro is clearly down, with lower highs and lower lows since February 2018, and a cumulative loss of more than 11% since then.CAD
The Canadian dollar weakens toward 1.35 as the price of oil drops again; it is now down 8% in two weeks. The C-dollar was also hit by trade war escalation between the US and China. China is a large trading partner for Canada, and if Chinese and US economies weaken due to trade war, then Canada’s GDP will suffer.ASIA/PACIFIC
The offshore Chinese renminbi initially sank well over 1% when FX trading began after Trump's tariff tweets, but has now settled in the 6.78 range for a 0.75% drop. Asian equity markets were all much weaker with some Chinese indexes down over 7%.
Japan remains closed for extended Golden Week holidays.
The Australian dollar traded much weaker based on its trade with China being disrupted in a tariff war. The A-dollar sank to its lowest level since January 2016.
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