Last week’s industrial production data figures and Michigan consumer spending index saw the Dollar strengthen – the greenback fell from 1.343 to 1.328. The USD report below looks at the impact of negative economic data on the USD amid looming US trade wars. The table below shows the difference in USD you could have achieved during the past month, depending on the time during the month you carried our your transfer and the range of exchange rates.
|Currency Pair||% Change||Difference on £200,000|
Mr. Trump does not have a good record when it comes to thinking about US allies. At the recent G7 summit in Quebec, he made insults and trade threats to his Canadian hosts and other close allies. Looming in the background are the tariffs on certain EU imports, their retaliation, and the renegotiation of NAFTA agreements with Canada and Mexico either individually or together.
We have seen the opening shots in a trade war between the world’s two largest economies being fired. Donald Trump last week announced tariffs on $50 billion on imports from China. The Chinese response – came within a matter of hours - was reciprocate action. The next move is the US’s, who could respond tit-for-tat: the US trade office have been working on a $100 billion list of tariffs…
The uncertainty of a trade war hinders growth for those involved, it will increase volatility in the markets and should weaken the Dollar – though with economic slowdown in the EU and Brexit uncertainty there is no real way of knowing which way the rates will go.
Thursday’s meeting between OPEC, Russia and other large crude oil producers is shaping up to be one of the most contentious in years, with members of the 2016 agreement to reduce oil output deeply divided over what to do now that prices have recovered to just below $80 a barrel. Saudi Arabia and Russia have discussed gradually raising output to fill a supply gap left by Venezuela’s economic collapse and the coming impact of renewed US-sanctions on Iran. However, other OPEC members oppose this move, with Iran and Venezuela wary of being seen to be dictated to by Washington.
The question here for those with an upcoming Dollar requirement is – if the price of oil fluctuates after Thursday’s meeting, what will be the impact on the greenback?
At this point with a great deal of uncertainty, most traders and analysts are expecting that there might be a small incremental increase in production – enough to implicate the US on one hand but also not enough to inflate prices of which they are benefiting from the higher oil prices and revenues brought to this government. If that is the case, we could see prices remain at around $75-80 a barrel.
Expectations that prices could rise towards $100 a barrel are for the most part being toned down.
Now, there is much less correlation between oil prices and the USD today than in the past - largely due to the reduction of net oil imports from the US – when one would strengthen, the other would weaken. When the price of crude goes up, the USA will be using more Dollars to buy it, which means more Dollars are going out of the country and hence the Dollar would weaken. The same would be true other way round. However, this is when we look at it in isolation. The US is also one of the biggest oil producers - so when oil prices go up, its own oil revenue will also go up - this impact might counter the fall in Dollar slightly but not significantly because it is still a net importer. Another factor comes into play: if oil price goes up, those prices increases apply for rest of the world also. They trade oil in USD and will need to spend more Dollars to buy oil - thus demand for the greenback will go up in the international market which may counter the fall of Dollar because of increasing oil price.
It is worth keeping an eye on the Fed’s William Dudley and FOMC members Bostic and Williams’ speeches today – expect Dollar fluctuations after 1245, 1700 and 1945 GMT time.
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