With few tier-1 macro data points for markets to anchor their view, the focus was on government and central bank officials, including of course US President Trump. The net result was a slightly weaker US Dollar.
Speaking to Reuters yesterday Trump touched on a number of subjects, including China, Russia, Iran, North Korea and Turkey. As often the case he was long on bluster but short on substance. He was non-committal about the odds of the US and China reaching an agreement on trade, about the US applying further sanctions to Turkey or lifting those on Russia and about him meeting Chinese and North Korean leaders in the near-future. However, he did seemingly get markets’ attention when he said he was not thrilled with the Fed raising interest rates. Moreover, when asked about whether he believed in the Fed’s independence he replied that be believed in the Fed doing what’s good for the country.
President Trump has been publicly critical of the Fed’s rate hikes and the strong Dollar while at the same time recently praising the “money pouring into our cherished Dollar like rarely before”. Consistency is not always a by-word for President Trump and his latest comments should have come as little surprise. But whenever the Federal Reserve’s independence is mentioned, even in passing, markets tend to react and the Dollar has in the past 24 hours lost a bit of ground against all developed currencies, bar the Japanese Yen, and even a few high-yielding emerging market currencies, including the South African Rand. No such luck for the Turkish Lira which has again been under pressure after Turkey’s sovereign credit ratings were downgraded.
US President Trump also stated that China was manipulating its currency and that the Euro was also being manipulated. Again this has been a recovering theme for Trump and what he is really driving at is his belief that the Dollar is too strong and the Renminbi and Euro too weak and that this is putting the US economy at a disadvantage. He may have a point in the case of the Renminbi, which the People’s Bank of China has significantly weakened in the past two months. However, the US Treasury is unlikely to label China a currency manipulator when it publishes its semi-annual report in October.
Trump’s argument that the Euro is being manipulated is arguably less solid. While the PBoC sets the USD/CNY fix, the Euro is largely a by-product of market forces. Moreover, in trade-weighted terms, the Euro has appreciated about 13.5% in the past 18 months. Trump’s criticism of the Euro seems mainly directed at Germany which runs a sizeable trade surplus of $65bn with the US and which, according to the IFO Institute, will again post the highest trade surplus of any country in the world in 2018 (an estimated $299bn).
The AUD/USD cross has risen for the second consecutive day but this is more about US Dollar weakness than Australian Dollar strength. As broadly expected the message of the Reserve Bank of Australia’s policy meeting minutes was that the the RBA sees no compelling reason at this stage to even consider changing policy rates although it acknowledged some strengthening of the Australian labour market. Prime Minister Turnbull survived an internal leadership contest vote.
