US Dollar, FOMC Minutes, Trade War – Talking Points
- US Dollar may sink if FOMC minutes inflame Fed rate cut bets
- Haven demand may push USD higher if trade tensions flare up
- But boost to Greenback may be curtailed by easing expectations
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Asia-Pacific Recap: Will China Retaliate Against US for Hong Kong Bill?
The Australian Dollar fell early into Asia’s Wednesday trading session after news broke that the US Senate unanimously passed a bill in support of the Hong Kong protests. This follows a similar piece of legislation that passed in the House in October. Beijing has threatened unspecified countermeasures if the bill is signed into law, putting APAC equities and sentiment-linked assets at risk of a breakdown in US-China trade talks.
The selloff in the US Dollar may intensify if the publication of the FOMC minutes from the October meeting shows policymakers are tilting unexpectedly more dovish. Downside pressure of future easing expectations may cause traders to divest from the Greenback. However, if US-China trade talks deteriorate, it could trigger the US Dollar’s attraction as a haven, though upside pressure from this may be overwhelmed by rate cut bets.
US Dollar Index – Daily Chart
US Dollar Index chart created using TradingView
Traders will be gleaning the FOMC minutes in an effort to extract how policymakers feel about the outlook. Since the meeting last month, a number of officials have spoken, with the most recent comments coming from New York Fed President John Williams. He noted that policy is currently somewhat accommodative and alluded to a myriad of challenges including geopolitical risks and slower growth out of China and Europe.
This follows a meeting Fed Chairman Jerome Powell had with Treasury Secretary Steven Mnuchin and US President Donald Trump on Sunday where they discussed the economy and interest rates. Mr. Trump has expressed his discontent with the Fed’s policy and has advocated for aggressive easing and the use of negative interest rates. The Chairman, however, recently reiterated the central banks position: they are data-dependent.
US-China Trade War
Beijing and Washington are struggling to secure “phase 1” in their multi-sequential trade accord in an effort to end the US-Sino economic conflict. Now, the passage of a bill in support of protesters in Hong Kong who have been a thorn in the Chinese government’s side will likely cast a long and dark shadow of doubt over hopes of a quick and relatively painless end to the US-China trade war.
How Beijing will respond to the most recent vote in the Senate will be keeping traders up at night. One pressure point China can leverage is they can slap over $3.4 billion worth of tariffs against the US after a recent WTO panel of judges ruled that the world’s largest economy had violated international trading standards. Beijing has not made use of this new economic weapon, though perhaps officials were just waiting for the right time.
US DOLLAR TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter