0811 GMT October 17, 2019
The US Dollar finished lower against a basket of major currencies except the Japanese Yen last week after an easing of tensions over the trade dispute between the United States and China encouraged investors to lift dollar hedges. This led to sharp gains in higher risk and emerging currencies, pressuring the greenback, FX Empire reported.
Essentially, the dollar hit a 2-1/2 month low on reduced safe haven demand amid a switch in investors’ views that the Sino-US trade conflict would not lead to an immediate global shock.
For the week, the December US Dollar Index settled at 93.798, down 0.707 or -0.75 percent.
To recap, on Monday, the Trump administration announced it will impose 10 percent tariffs on about $200 billion of imports from China effective September 24. Traders had priced in the possibility of a 25 percent tariff. However, Trump did say in a statement the tariffs would rise to 24 percent on January 1, 2019.
On Tuesday, China said it will institute new tariffs on US goods worth $60 billion on September 24. The media outlet said the Asian country’s tariff rate on a list of 5,207 US products will range between five percent and 10 percent. This was also less than the market expected. Some were looking for China to go after the supply chain by limiting exports of strategic metals and small electronic components.
For weeks leading up to these latest tariffs, investors had been operating under the notion that they would cause a global economic slowdown. This led investors to buy the US Dollar as protection because it is seen as the world’s reserve currency and the safest place to put money during an economic downturn.
The dollar’s losses may have been limited by expectations of a Fed rate hike at next week’s 2-day monetary policy meeting. The Fed is widely expected to raise its benchmark interest rate by 25 basis points.
The Australian Dollar, a proxy of China-related trades as well as gauge of risk sentiment, climbed to a three-week high last week. It also produced its biggest weekly advance in 14 months. Additionally, S&P Global Ratings revised its outlook on triple-A rated Australia to stable from negative, providing the Aussie with a further lift.
In its monetary policy minutes, the Reserve Bank of Australia (RBA) warned on risks to its outlook from US-China trade tensions and weak wages, while reaffirming its next interest rate move would likely be a hike.
The RBA also said ‘Significant tensions’ around trade policy are a ‘material risk’ to the global outlook. Unemployment is expected to decline gradually toward five percent and wage growth is expected to increase gradually as spare capacity in the labor market is absorbed.