Though US political news continues to dominate the global cycle, the United States Dollar is relatively flat this morning with some slight chop overnight after sitting President Joe Biden announced he would not be seeking re-election this year and endorsed his Vice President Kamala Harris.
Overview
In what amounts to bombshell news, though it was not entirely unexpected, the 81-year-old withdrew from the presidential race with less than four months until the general election and less than one month before the Democratic National Convention in Chicago.
In what could well be the busiest week in American political history, bookended by an assassination attempt on one end and the other major candidate dropping out of the race on the other, markets had begun to treat a potential second term of a Trump administration as more of an inevitability than a possibility and the so-called “Trump trade” had picked up in popularity. In recent weeks, Trump’s espoused preference for a weaker dollar and a slew of proposed policies that could drive up the American deficit and inflation have dented the dollar. There was a chance that, in the immediate sense, the Dollar could catch a bid solely on geopolitical uncertainty and safe-haven appeal. Still, such a bid did not materialize in any significant way. The Bloomberg Dollar Spot Index initially lost some ground following the Sydney open into Asian trading but is now close to flat compared with Friday’s close. Such a muted reaction shows that markets may not think anyone, regardless of who the candidate is, has a real chance of beating Donald Trump to the White House in November. Trump’s odds of winning, even though they did decline over the last week, still hover around 60%.
With Kamala Harris as the likely Democratic nominee, the presidential race enters a new phase. Democrats hope the change-up will inject new life into their flailing campaign, while Republicans are now contending with a new opponent to attack. As it stands, however, both sides have shown a policy preference that will likely raise the deficit, and many investors are sounding the alarm bell against the possibility of further fiscal stimulus – as yesterday’s decision shakes out, we still expect some Dollar negativity in the second half of the year. The economic calendar also continues to grind out information releases, with the Fed’s preferred inflation gauge of PCE.
What to Watch Today…
- Bank of Canada Meeting, Wednesday
- US GDP Q2, Thursday 8:30AM
- US PCE Price Index, Friday 8:30 AM
- Monex USA Online is always open.
JPY ⇑
Japanese Yen caught a bit of a positive swing after the news that Joe Biden is dropping out of the US presidential race, currently 0.3% stronger against USD. After what many think was a second round of intervention by Japanese currency officials this week, JPY has gained more than 6% off its historic lows and, in response, hedge funds and others have cut their bets to short JPY by the most in more than a decade. The People’s Bank of China also cut its 7-day interest rate by 0.1% overnight, giving some aid to JPY in particular.
AUD ⇓
The Australian Dollar, followed closely by its counterpart in New Zealand, is the biggest loser on the G10 board this morning, losing six-tenths of a percent against USD today. The People’s Bank of China cut its key short-term policy rate, showing further consideration of economic softness from the world’s second-largest economy. The potential for a second Trump presidency, as well, continues to weight on nations that have close economic ties with China. AUD is set for its sixth straight daily loss against USD, amounting to its longest losing streak in nearly a year.
