USD Strengthens after Trump’s $200 Billion Trade Threat

Key Movers

Bank of Canada rate decision is today and OIS has priced in 90% chance of a 25bps hike. Even though a hike is expected, this may be a “dovish hike” as likelihood of any further tightening may be small. More guidance will occur later today at 11:15 EST with the press conference to follow after the 10:00 EST decision.
In the background we’ll have US Crude Oil Inventories in July release simultaneously. The Loonie is soft heading into the rate decision due to US-China trade risks that is dampening commodities.


The latest German ZEW Economic Sentiment survey result was released yesterday registering its fifth fall in six releases. The -24.7 reading is the worst since August 2012 and ZEW President, Professor Achim Wambach, commented: “The current survey period has been marked by great political uncertainty. In particular, fears over an escalation of the international trade war with the United States have dampened the economic outlook.
The positive news regarding industrial production, incoming orders and the labour market have been greatly overshadowed by the anticipated negative effects on foreign trade,” This weeks main event from the EZ is tomorrows minutes from the last ECB Rate decision.


After Tory political drama hit sterling hard on Monday the pound found its feet yesterday and appears to have stabilised after the resignations of David Davis and Boris Johnson from Prime Minister, Theresa Mays cabinet. The departure of the Brexit Secretary (Davis) and in particular the Foreign Secretary (Johnson) had enveloped the pound in uncertainty resulting in GBP falling before finding support. Data-wise yesterday we saw the first monthly print of UK GDP which showed an uptick of 0.3% from April to May. Going forward the Office for National Statistics will be producing monthly numbers (like Canada does already) as well as the usual quarterly figures. At the same time the Mays Manufacturing Production reading missed target showing only 0.4% expansion when 1% had been expected. The net-result of the two data-sets was pound negative and saw cable fall away from the 1.33 handle it has been threatening to punch back through. Bank of England Governor, Mark Carney is due to give a speech later today in Boston however the biggest mover for sterling could be England’s World cup semi-final against Croatia this evening. Mark Carney has already highlighted the boost to the UK economy a world cup win would have and should England progress to the final then a pound-rally could be on the cards as consumer spending sky-rockets in preparation for Sundays match. Obviously there is a big obstacle in the way tonight, Croatia are blessed with some world class players in Luka Modric and Ivan Rakitic however the bookies have England as slight favourites for the match. Come on England!


The announcement of the latest set of US trade tariffs against China sent the Aussie lower overnight as a risk off sentiment hit the markets. Retaliatory action from China will now be on the eyes of Aussie holders as its biggest trading partner weighs up its options.


The Kiwi has suffered overnight on the aforementioned trade tensions between the US and China and tomorrow nights Business NZ Manufacturing Index is unlikely to provide any relief should China announce counter-measures before the end of the week. Market sentiment around the tariffs will likely influence the local dollar for the rest of the week.