Friday, August 9, 2019

Trump voices dismay over the strong dollar, Chinese yuan stabilises at around 7-per-dollar’s level, beware of the UK’s GDP today

  • Dollar
  • Gold
  • Euro
  • Chinese Yuan

Market recap: Trump’s tweets put more pressure on the Fed again, while the Aussie led the G10 yesterday

Once again, US president Donald Trump is not a happy man. Yesterday, he took to his favourite social media platform Twitter to air his grievances over the strength of the dollar and the Fed’s monetary policy, saying: “One would think that I would be thrilled with our very strong dollar. I am not!” Though the dollar index dropped to 97.40’s level yesterday, it is still in a strong position as the economic outlook of its counter currencies, such as the euro and sterling, continues to be weak. Trump again pressured the Fed to lower the rate in a bid to win the ongoing trade war.

Tension has heightened regarding the trade war with China since Trump announced the US government’s plans to raise tariffs on US$300 billion of Chinese imports on September 01st has been eased, with all three major US indices surging from 1.4% to 2.2% as a result. The People’s Bank of China (PBOC) set the official midpoint reference for the Chinese yuan at 7.0136 per dollar, the second time this week it has been set weaker than the vital level of 7 (but not lower than its previous level). 

It seems the PBOC is trying to keep the currency stable to avoid uncertainty surrounding the current global market. The Australian dollar topped the G10 league table yesterday, as financial market fears regarding the Chinese yuan’s outlook subsided. However, Reserve Bank of Australia (RBA) governor Philip Lowe acknowledged that it is, “Unlikely but possible that we head to the zero-lower bound”. He also confirmed a market projection that the RBA is going to launch another rate cut by the end of the year. 

Meanwhile, the euro dropped further to 1.1170’s level yesterday, after Italy’s ruling League Party claimed the country’s governing coalition is unworkable, and that the public may return to the polls to vote in a new general election. The yield of 10-year Italian treasury bonds was up 10.3% yesterday, while the spread with the 10-year German treasury bond is at its highest level since early July, throwing the Eurozone’s third largest economy into deeper political uncertainty.

Today’s analysis: The UK’s GDP and Canada’s employment rate will be announced today

Brexit chaos still surrounds sterling, although today the market will shift its focus to figures released by the UK at GMT+4 12:30. The UK will announce its second quarter GDP, with a market consensus of 1.4%, a drop from the previous rate of 1.8%. The economic outlook for the UK is often better than most Eurozone nations, but its economy has still suffered from downslide and has disappointed businesses.

The ongoing trade war, worsening global economy and Brexit, especially after new PM Boris Johnson won the ruling UK Conservative Party’s leadership election, are all key factors here. A decline in demand for exports in the European markets has also led the UK to follow the downtrend of the Eurozone’s economy. Sterling has been trading at the year’s lowest level range at 1.2080-1.2200 for the past eight trading days, and it is expected that today’s figure may depreciate the pound even further. There is a risk it could break its previous low.

The Canadian dollar is still one of the strongest against its US counterpart this year, even though it has fallen around 2% after hitting a nine-month peak of 1.3016 in July. Oil prices have retreated from their peak and the US and China trade war has added even more trade market uncertainty. In fact, compared to all G10 currencies, the Canadian dollar’s rate is the most likely to rise or hold its current rate, as the country’s economy seems to be strong enough to withstand uncertainties surrounding global trade.

At GMT+4 16:30, Canada will release its latest employment report, with the market projecting a net increase of 15,000 jobs. Overall, the market consensus also tips the country’s unemployment rate to remain the same at 5.5%.

The market expects the Bank of Canada (BoC) to closely watch the country’s latest jobs data before hinting about making any adjustments to its current monetary policy, as most major central banks have already cut their rates. But the BoC seems happy to uphold a relatively neutral stance, meaning should the figure beat its market projection, the Canadian dollar may continue down the strong path it started two days and continue to reach 1.31’s level in the short run, which increases the possibility of BoC sticking to its wait-and-see attitude when it comes to its monetary policy.