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“The announced delay on some of the US tariffs on China is positive news for USD vs low yielding FX such as JPY, EUR and CHF,” argue ING analysts. “On the flip side, the dollar should reverse some recent gains vs higher beta G10 FX (AUD) and EM currencies for now. Still, the lack of visibility on trade wars means that this should not be seen as a long-lasting trend.”

Key quotes

“The news of the delay of some US tariffs on certain Chinese goods (from September to December) is positive for risk sentiment, although the full details aren’t yet known. You can see this by the initial reaction in FX markets with higher beta, high yielding FX such as AUD in the G10 FX space outperforming USD (due to the “risk-on factor”) while the likes of EUR, CHF and JPY under-performing the dollar (mainly via “higher UST yield factor” – this is particularly the case for the euro).”

“In terms of the latter, the front-end UST yields spiked on the news (helped by higher CPI as well), with the hawkish Fed re-pricing supporting the dollar against the low yielding FX segment.”

“Among the G10 FX low yielders, JPY is to be a key underperformer (at least over the short term) as the current mix of the higher UST yields and the risk-on environment is very negative for the currency. JPY to underperform EUR and CHF with the latter two currencies both exhibiting lower correlation with risk (yet nonetheless suffer from higher UST yields).”