Analysts at TD Securities, in a market wrap, noted that the USD is firing on all cylinders after President Trump imposed another round of tariffs on $16bn of Chinese imports, provoking a tit-for-tat retaliation.
Key Quotes:
“However, the announcement had little impact on broader risk sentiment with North American equities little changed (SPX: -0.2%, TSX: unch), while rates bear-flattened on both sides of the border.”
“AUD (-1.4%) is leading a broad selloff against the USD on rising political uncertainty over the future of PM Turnbull. GBP (-0.8%) was also hit by political headwinds after the UK released a series of technical papers outlining the implications of a “no-deal” Brexit.
Australian political developments and NZ trade are the regional focus for Friday.”
What we’re watching in markets
“The political situation in AUD amplifies the macro risks, as markets mull the prospects of a rating downgrade on a shift in government. We continue to target a move to 1.0850 in AUDNZD and would look to take profit on the AUDJPY put spread floated last month. We still like the short CAD theme, highlighting that we remain long EURCAD through a 3m RR.”
“With market barely reacting to the August FOMC minutes, the focus will shift to Chair Powell’s Jackson Hole remarks at 10am EDT on Friday. Treasuries are unlikely to react unless Powell mentions longer-term issues such as balance sheet runoff, the pace of hikes, or r*, but we expect little new information.”
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