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  • Dollar and US yields tank, Yen soars, Gold maks your eyes water and all thanks to Trump.
  • Trump tweets that he is adding another 10%-25% tariff on the remaining USD300bn worth of US imports from China, markets collapse.  

Forex today was one hell of a show, that’s if you were sitting back as a spectator that is, otherwise, it was a wild ride, churning you up and spitting you back out again. It was a frantic session, to say the least, which saw US yields plummeting, the Yen soaring, the Dollar giving back most of its post-Fed gains and US stocks of a cliff. Gold was a major benefactor, soaring some $45.00s.

A frustrated Trump, following his disapproval with a defiant Fed, decided to abruptly announce that he will be adding another 10%-25% tariff on the remaining USD300bn worth of US imports from China.

He said, over a series of tweets, that this will be applied on 1 September when the next round of trade talks between the US and China is set to commence. USD250bn worth of goods are already subject to a 25% tariff and this is clearly having an adverse impact on China’s contracting manufacturing industry judging by the state of the PMI readings of late.

As for data, the July ISM manufacturing index fell to 51.2 down from 51.7 in June. New orders firmed to 50.8 up from a previous reading of 50. While the production manufacturing index fell to 50.8, down from 54.1 in June. June construction spending fell 1.3% m/m.

Dollar treads water in shark-infested seas ahead of key Nonfarm Payrolls

We will now look to the next US data in the form on Nonfarm Payrolls. some may argue that the data will not hold quite as much as importance so soon after the Fed’s interest rate decision. However, considering Trump’s latest escapade which has turned up the heat for the Fed to likely need to cut interest rates again as trade wars intensify, a poor jobs number will likely seal the deal in that respect in the market’s mind and weigh heavily on the Dollar which is treading water in shark-infested seas at the moment.  

Currency action

As for currency action, analysts at Westpac summed it up as follows:  

EUR/USD drifted down to 1.1030 then bounced to 1.1095, with about 20 pips of this on the Trump tweets. Having rallied as high as 109.30 in Sydney trade after the FOMC, USD/JPY trended lower through London, already down to 108.20 by the time of the tariff headlines, then extending to 107.25.

GBP rebounded off a 2 ½ year low of 1.2080 to 1.2170 after the BoE retained its tightening bias. Underperformer AUD fell from 0.6860 to 0.6795 – the lowest since 2009 (excluding 3 Jan intraday spike). USD/CNH jumped from 6.9030 to 6.9585. NZD was relatively resilient, ranging between 0.6540 and 0.6580. AUD/NZD fell from 1.0440 to 1.0364 – the lowest since March.

Key notes from Wall Street:

  • Wall Street ends in the red as Trump turns the screw of China

Key events ahead in Asia:

Analysts at Westpac offered their outlook for the day ahead:

  • Consumer spending is likely to remain sluggish in Australia’s June retail sales report (11:30am Syd/9:30am Sing/HK). Westpac looks for a mere 0.1%mth rise in nominal turnover, the same as in May and below consensus of 0.3%. Slow wages growth and soft consumer sentiment even with the RBA rate cut suggest another underwhelming month. For Q2 inflation-adjusted sales, we look for a 0.3%qtr rise, in line with consensus. This compares to -0.1%qtr in Q1 but bear in mind that the retail sales survey captures only a portion of total household spending – the national accounts estimate of private consumption was +0.3%qtr.

  • Also due in Australia is Q2 producer prices, which is of little interest post-CPI. The PPI rose 1.9%yr in Q1.