FX Update: The return of Tariff Man sees USD lower FX Update: The return of Tariff Man sees USD lower FX Update: The return of Tariff Man sees USD lower

FX Update: The return of Tariff Man sees USD lower

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  Yesterday may have been a watershed moment for the US dollar, which weakened on the combination of a weak November ISM Manufacturing survey and fresh signs of an aggressive protectionist stance on trade policy from the Trump administration.

Yesterday saw the novel combination of weak risk appetite, weak US treasuries and a weak US dollar after the Trump administration signaled new tariffs on Brazil, Argentina (steel) and France (luxury goods in response to taxes on US tech giants) and signaled that if no US-China trade deal is reached, it  would mean the next round of tariffs would go into effect on December 15. Trump complained that Brazil and Argentina are hurting US farmers by maintaining artificially low exchange rates and the taxes on French luxury goods could be assessed at 100%. In general, in the not so distant past, news that seemed to threaten the prospects for a trade deal seemed to support the US dollar – certainly not the case yesterday. Is the market finally coming around to the view that Trump is dead set on getting a weaker US dollar? We have an open mind on whether the USD is finally turning lower here – with the next batch of data through this Friday the first hurdle and then the end-of-year USD liquidity issue the last hurdle for this year (assuming that Fed largely a non-event if data strong and slightly more cautious if data is weak).

Yesterday’s November ISM Manufacturing survey came in at a weak 48.1 versus 49.2 expected and a hair weaker than October’s 48.3, and interesting to see the USD lower on this, even as long US treasuries stayed weak and markets failed to adjust their Fed rate expectations on the news. The latter can’t be the case if we see a notably weaker ISM Non-manufacturing survey tomorrow and a much weaker than expected November jobs report Friday.

The RBA overnight was a more hawkish than expected affair, backing up Australian short rates another few basis points as the RBA hopes that the accommodation provided by prior cuts helps to boost asset markets (real estates) and get consumers in a sending mood, with strong population growth also noted – with the Bank of Canada up tomorrow, we have AUDCAD at an interesting crossroads technically on the chart – upside the side of least resistance if Bank of Canada signals more caution.

The USD was lower across the board since yesterday, and the AUD got nominal support from an optimistic, or at least “wait and see” RBA meeting overnight, and perhaps as the market has taken Chinese data at face value. The ability of the Aussie to rally despite concerns on the US-China trade front is also notable. Positioning and the sudden momentum here are wind at the  bulls’ back, with the next technical hurdle the descending channel formation that has defined the chart for the last year and more.

Source: Saxo Group

The G-10 rundown

USD – after so much quiet of late, it is tempting to see yesterday’s action as a watershed moment, but we need a determined follow through lower in the greenback – regardless of the US data mix through the rest of the week, for a better confirmation that something larger is afoot.

EUR – the 1.1000 level in EURUSD has held very well after two recent tests – clear from all of the noise of late, including Lagarde’s speech yesterday, that  Euro Zone gearing up for a major climate policy push that will inevitably include a fiscal stimulus element – could this be financed in the form of super-national EUR climate bonds? EURUSD needs to clear the 1.1180 hurdle before we can start discussing notable technical developments.

JPY – the yen reacting strongly to risk off is the usual no-brainer, but perhaps more  interesting is the spike in JGB yields at the long end, with the 10-year nearly reaching 0% overnight after the weak auction overnight. Japan is also warming up a fiscal stimulus – JPY supportive and an interesting turn in USDJPY overnight – will this one punch lower unlike the prior treacherous one?

GBP – a spectacularly weak BRC like-for-like survey overnight,  but market only has eyes for smooth Brexit prospects and the boost to sentiment and capital inflows this will provide, as well as perhaps the idea that a weak economy improves Boris Johnson’s chances and increases the vigor of his eventual fiscal outlays.

CHF – USDCHF did not tarry above parity – if risk off fails to stick and bond yields head higher, would suspect EURCHF remains supported.

AUD – a very strong Aussie has to be taken at face value on the upbeat RBA – but how will the market absorb a more profound risk off move across markets, the US tariffs against China going into effect on December 15, etc.?

CAD – the loonie could prove weaker in the crosses if US data continues to come in weak – note AUDCAD technical situation ahead of the heavy load of US data through the end of this week and the Bank of Canada meeting tomorrow.

NZD – AUDNZD trying to turn the corner overnight, but a lot of wood to chop to turn the tide in the bulls’ favour there – note RBNZ Governor Orr out again late today.

SEK – a stronger Euro is supportive of an even stronger SEK, and rather impressive to see EURSEK heavy again after yesterday’s miserably weak Swedish PMI. The rise of the anti-immigration Sweden Democrats in the polls (polling as the largest party in Sweden at times lately) could encourage the sitting government into a more activist stance on the fiscal side.

NOK – EURNOK stuck mid-range, awaiting signals from the global economy and oil prices – we NOK firmer eventually, but seasonality is a head wind for NOK bulls until January.

Today’s Economic Calendar Highlights (all times GMT)

  • 0930 – South Africa Q3 GDP
  • 0930 – UK Nov. Construction PMI
  • 1330 – Riksbank’s Jansson to Speak
  • 1600 – New Zealand QV House Prices
  • 1910 – New Zealand RBNZ’s Orr to Speak
  • 0030 – Australia Q3 GDP



The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992