The U.S. Dollar is trading in mostly tight ranges as the news over tariffs imposed on countries are being digested by markets, which are now getting accustomed to the back-and-forth about full implementation.
Overview
In particular, reports of the 50.0% tariff on Brazilian goods are driving movement across emerging-Market currencies as their economies could face the potential of immediate higher costs applied to commerce with the U.S. The global situation is a delicate one with fragile growth and concerns about ever-increasing costs. Nevertheless, investors and traders are now trying not to overreact as they place doubt on the permanency of such promises and measures.
Stock markets, like most FX have not seemed too bothered as we look forward to earnings reports next week and gauge how large companies are doing. Initial Jobless Claims this morning came in slightly lower than expected, but continuing claims remained high as estimated. Next week we will have a closer look at inflation in the form of both Consumer Price Index and Producer Price Index.
There will be also plenty of data looking back at June that will likely impact the Buck as well as move the probability of Fed chances to cut interest rates down the line. From the Minutes, we learned little that would be new, but clearly members are concerned about the impact of shocks to trade and the uncertainty over executing vast changes. Reductions to borrowing costs are coming, but caution remains. Thus far, the Buck remains the most punished asset for the year, and it is hard to imagine where it will go from here.
What to Watch This Week…
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AUD ⇑
The Australian Dollar has been upwardly trending following reaction after the Reserve Bank of Australia held interest rates at current levels during their announcement Tuesday. Surprising plenty of economists, the RBA figured it would take a wait-and-see approach instead of cutting and setting up for more slashed down the line. Had officials agreed to reduce it, it would have marked the third rate cut in just 5 months. With central bank policy divergence playing a role in how currency pairs behave, this represented a “hawkish” shock since the negative outlooks on the global economy presented by RBA members signaled to watchers that there would be an intense attempt to cut rates. Their August meeting will be important to see if inflation dimming convinces members to get back to looser policy.
MXN ⇓
The Mexican Peso is mostly flat but tilting towards losses as the Emerging-Markets world is hurt by the tariffs added on Brazil, the Philippines, Sri Lanaka and others. With copper prices also rising as a 50.0% tariff on all copper imports promised for August, inflation and stagnation to economic growth are worrying global leadership. When it comes to Brazil, the shake-up from all that is happening will have a major influence on elections for next year. With Claudia Sheinbaum in charge, Mexico has managed to stay resilient in the midst of challenges to established trade and is a factor in keeping Peso value elevated.
