Trade war heats up, cools USD rally in Spite of a Solid U.S. Jobs Report

Aug. 2, 2019 (Western Union Business Solutions)  – The U.S. dollar kept below multiyear peaks as solid jobs data wasn’t enough to allay concerns about the amped up trade war. Making good on the Fed chairman’s generally rosy outlook for U.S. growth, America’s jobs report met forecasts with a gain of 164,000 in July, a healthy amount that kept unemployment at a low 3.7%. Wages surprised to the upside with a 3.2% annual increase. If not for the trade troubles, a print like today’s would be consistent with a stronger dollar and only minor interest rate adjustments by the Fed.

EUR

The euro stabilized above 26-month lows thanks to the dollar’s trade war-induced decline. It also helped at the margin that euro zone retail sales surprised to the upside with a 1.1% jump in June, which easily cleared forecasts of a modest uptick. Still, the data shouldn’t offer meaningful support to the euro, particularly after the previous number got downgraded, underscoring the bloc’s poor prospects.

JPY

Safer bets like the yen and Swiss franc were the initial winners of the surprise escalation in the U.S.-China trade war. The yen turned the tables on the dollar, as USDJPY plunged by 2 ½ yen to late June lows. The ongoing trade feud has been credited with slowing global growth and the latest round only increases the headwinds. Treasury yields collapsed, weighing on the dollar and suggesting a higher likelihood of the Fed cutting rates again in September.

AUD

The Aussie dollar crashed to seven-month lows after the latest salvo in the U.S.-China trade war added to the dim outlook for Australian growth, a scenario that suggests a low bar for the Reserve Bank to lower lending rates from 1%. The RBA could take action as soon as its Aug. 6 meeting.

CAD

The loonie lurched to new six-week lows despite good news on the Canadian economy. Canada logged a surprise trade surplus of C$136 million in June, its second surplus in as many months. However, the size of the surplus moderated from a downwardly revised C$556 million in May. Sustaining a trade surplus appears tougher for Canada after the latest intensification of the U.S.-China trade war. The loonie also appears a bit hungover after oil’s biggest single-day swan dive in more than four years, when it shed more than $4 and closed Thursday below $54.

 

 

 

 


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