Dollar hold gains in cautious trade ahead of new US tariffs on China

Reuters SYDNEY | Updated on September 17, 2018 Published on September 17, 2018

The dollar held above a recent one and a half month trough against a basket of major currencies on Monday, with investors cautiously awaiting news on the implementation of US tariffs on an additional $200 billion of Chinese imports.

US President Donald Trump is likely to announce the new levies as early as Monday, a source told Reuters. The tariff level will probably be about 10 per cent, the Wall Street Journal reported, below the 25 per cent the administration had said it was considering. It also reported that China may decline to attend trade talks due next week as Beijing won't negotiate under threat.

“Further escalation looks very likely in which the rate will likely be raised to 25 per cent and more US tariffs threatened, while China may potentially pull out of trade talks entirely and escalate on the new front of outright export restrictions,” JPMorgan analysts said in a morning note. “This would of course only inflame the situation further.”

The dollar index against a basket of major currencies held at 94.965, well above Friday's 94.359 which was the lowest since end-July. The dollar was last at 111.99 yen, within kissing distance of Friday's 112.16 which was the highest since mid-July. It gained 0.9 per cent last week.

The dollar has seen a surge in safe-haven demand from an escalation of global trade tensions involving the United States, China, Canada and the European Union. Expectations of faster US rate rises have also pulled the currency higher.

Investors continue to be bullish on the greenback with net long positions of $19.2 billion, according to calculations by Reuters and Commodity Futures Trading Commission (CFTC) data released on Friday.

The CFTC report also showed the major positioning changes were in the euro, with net longs increasing. Net shorts in sterling and the Swiss franc also declined.

The euro and sterling each rallied last week on encouraging developments on terms for Britain's exit from the European Union, paring some safe-haven demand for the dollar. The euro was last at $1.1624, down from a three-week top of $1.1721 set on Friday. The pound also retreated, dropping from last week's peak of $1.3145 to trade at $1.3071. The first of three Brexit summits are set for the coming week, where EU leaders hope to settle an agreement within the next two months over the terms of Britain's departure.

Investors will watch for European inflation data later in the day and a speech by European Central Bank President Mario Draghi on Tuesday.

The Australian dollar, which is a proxy for global growth and Chinese assets, has been battered in recent months as Trump's tariff threats became a reality. The Aussie is among the worst-performing major currencies in the developed world so far this year, having tumbled 8.6 per cent. The currency was last down 0.1 per cent at $0.7146, not far from a recent two and a half year trough of $0.7085.

Published on September 17, 2018
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