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Analysts at Westpac explained that the sharply negative response to the Trump administration’s planned tariffs extended in European and US trade, with equities sliding.  

Key Quotes:

“The Trump administration’s list of $200bn of Chinese goods imports potentially subject to 10% tariffs sparked a souring of risk appetite early Wednesday Sydney and there was no relief in Europe or US trade. Equities fell across the board, oil prices slumped and growth-sensitive currencies such as AUD were weakest.”

“Notably, the Chinese yuan was Asia’s softest currency, -0.7% for the onshore yuan and -1.1% for CNH which extended losses after spot CNY had closed. CNH is on track for its largest daily fall since August 2015. This will of course generate discussion about China using a weaker currency as one tool of retaliation against the US. Chinese officials on Wednesday pledged retaliation if the US proceeded with the threatened tariffs, but did not specify what China might do.”

“The US dollar rose against a wide range of currencies. EUR/USD fell from 1.1750 to 1.1675. Somewhat surprisingly, USD/JPY rose from 111.00 to 112.17 – the highest since January – with the yen not seeing the usual safe haven demand.”

“AUD and NZD demonstrated they are typically the most sensitive G10 currencies to global trade news. AUD was weakest in the G10. It had been around 0.7475 when the US tariff list was released 24 hours ago, falling to 0.7410 late Sydney trade Wednesday and extending losses to 0.7365 by early Thursday trade Sydney. NZD/USD similarly fell from 0.6820 to 0.6760. AUD/NZD rebounded off 1.0870 to 1.0900.”

“The Bank of Canada raised its benchmark rate 25bp to 1.5%, as widely expected; the Bank cited global trade tensions as the key risk but remain upbeat on domestic conditions and signaled more gradual hikes. On tariffs, the statement said that, “Although there will be difficult adjustments for some industries and their workers, the effect of these measures on Canadian growth and inflation is expected to be modest.” Another rate increase is 2/3 priced in by the 24 October meeting. USD/CAD dropped from 1.3140 to 1.3065 on the move but a few hours later joined the wave of USD buying, rising above 1.3200, up 0.7% on the day.”