Home Daily Commentaries US Treasury Secretary Mnuchin and Commerce Secretary Ross hit US Dollar with talk of a trade war. USD has biggest 1-day fall in 10 months.

US Treasury Secretary Mnuchin and Commerce Secretary Ross hit US Dollar with talk of a trade war. USD has biggest 1-day fall in 10 months.

Daily Currency Update

Wednesday was a genuinely dramatic day in global FX markets; January 24th 2018 will be remembered as the day in which US Treasury Secretary Steve Mnuchin stated on the record that, “Obviously a weaker dollar is good for us as it relates to trade and opportunities.” It is always easier to talk a currency down than to talk it up – as a host of former finance ministers and central bankers can readily testify – and investors were quick to sell the US Dollar. It already had got off to the worst start to any New Year since 2003 and yesterday was its worst daily drop in 10 months.
Against this backdrop, the Aussie Dollar of course moved higher against the US Dollar; as did almost every currency in the world; not just those which we follow most closely here. The weakness of the USD also gave a substantial boost also to commodity prices. Gold was up $11 to $1352 per ounce. Aluminium and zinc rose almost 1%, silver was up 2.2%, copper was 3.3% higher and nickel surged 5.7%. The net impact of this was to push the AUD up to a high of USD0.8080; taking it above last September’s peak and to the best level since January 2015 when it was around three-quarters of the way through its multi-year decline from an all-time high around USD1.10 to just 70 cents.
Wednesday’s Westpac leading index was very strong. The six-month annualised growth rate, which indicates the likely pace of economic activity relative to trend three to nine months into the future, jumped from +0.66% in November to +1.41% in December. As Westpac noted, “This is a very strong above trend reading and, following the solid results in October and November, points to solid above trend growth in the early part of 2018.” They also cautioned, however, that “there are still key negatives around housing, household incomes and the consumer which are likely to challenge the sustainability of any upswing in 2018.”
As thoughts turn to tomorrow’s Australia Day holiday, the AUD opens in Asia this morning at USD0.8075 with AUD/NZD at 1.0870 and GBP/AUD1.7610.

Key Movers

After Tuesday’s table-topping performance, the NZD only managed second place on Wednesday although against a very weak US Dollar, it did rise to a high of 0.7428; the first time it has been on a US 74 cents ‘big figure’ since early-August 2017.
In the latest developments since the Comprehensive and Progressive Agreement for Trans-Pacific Partnership was agreed Tuesday evening, New Zealand’s government said on Wednesday that it has achieved its five objectives in the renewed negotiations. In a statement to the media before heading off to Davos, David Parker, the NZ trade minister said, “Before the agreement is ratified, New Zealanders will be given the opportunity to better understand what it means for them, their families and the country. We are committed to ensuring this is done in a fair and accessible way”.
One consequence of the new deal is the government now has more time to reconsider a controversial proposal to shut foreign buyers out of the NZ property market. Legislation had been expected to be in place by March but Mr. Parker said “the Government will now recommend the select committee examining the Overseas Investment Amendment Bill allow more time for consideration”.
As well as the clumsily-titled CPATPP (an acronym which hardly rolls off the tongue), the big economic news domestically today will be the quarterly CPI numbers which consensus estimates will be around +0.4% q/q and 1.9% y/y. New Zealand (like Australia) doesn’t publish monthly CPI numbers so they’re always very keenly anticipated for clues to the RBNZ’s interest rate policy.
The NZD opens in Asia this morning at USD0.7425 with AUD/NZD at 1.0870.


The pound was rocket-fueled on Wednesday, continuing its remarkable run which has seen GBP/USD rise for 9 consecutive days without once testing or breaking the previous day’s low. From the day the ECB dropped its bombshell about possibly changing the language around forward guidance of monetary policy on January 11th, (ironically in an attempt to smooth market volatility) GBP/USD has risen almost 7 cents.
By teatime in London yesterday the pair hit 1.4227; the highest since the EU referendum on June 23rd 2016. The 230 pip (1.6%) rally was the biggest gain seen in GBP/USD since 17 January 2017, 264 trading days earlier. As Context Analysis point out, “the 3.4 cent (2.5%) rally seen in GBP/USD so far this week marks the strongest start to a week in the 83 weeks since June 2016”.
The latest economic data from the Office for National Statistics showed that in the three months to November 2017, the number of people in work increased, the number of unemployed people was little changed, and the number of people aged from 16 to 64 not working and not seeking or available to work (economically inactive) decreased. There were 32.21 million people in work, 102,000 more than for the previous 3-month period and 415,000 more than for a year earlier.
The unemployment rate was 4.3%, down from 4.8% a year earlier and the joint lowest since 1975, whilst average weekly earnings in nominal terms (that is, not adjusted for price inflation) increased by 2.5% including bonuses and by 2.4% excluding bonuses, compared with a year earlier.
There’s a pause on the UK data calendar Thursday then on Friday it’s the Q4 GDP numbers where consensus looks for a +0.4% q/q increase compared to the +0.5% rise which the Bank of England expected in its November Quarterly Bulletin.
The British Pound opens in Asia this morning at USD1.4215, AUD1.7610 and NZD1.9140.


In these first 3½ weeks of 2018, the USD index against a basket of major currencies has now fallen over 3 per cent; its worst start to any year since 1987. Wednesday was the worst day in 10 months for the USD which fell against every major currency and most of the world’s minor ones too. It opened at a 37-month low around 89.70 before the US Trade and Treasury Secretaries unleashed their own particular brand of Alpine diplomacy at the WEF in Davos. Less than 12 hours later, the USD index was on an 88 ‘big figure’.
Though Treasury Secretary Steve Mnuchin initially stuck to a familiar script that, “longer term the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency," he went on to say that, “Obviously a weaker dollar is good for us as it relates to trade and opportunities.”
Speaking alongside the Treasury Secretary, Commerce Secretary Wilbur Ross only inflamed the situation by saying that "Trade wars are fought every single day… a trade war has been in place for quite a little while, the difference is the U.S. troops are now coming to the rampart." This prompted Jack Ma, head of China’s Alibaba to say, “It’s so easy to launch a trade war, but it’s so difficult to stop the disaster of this war. Don’t use trade as a weapon, use trade as a solution to solve problems”. The mood hardly improved when Ross called China’s 2025 technology strategy a “direct threat” and hinted at action against Beijing, stirring fears of a genuine trade war.
President Donald Trump himself said last August that, “the dollar is getting too strong” and the currency world will be watching to see if he aligns with or distances himself from this talk of trade war when he gives his Davos speech later this week.
Amidst all the uncertainty and rising volatility in global stock markets, the US Dollar index opens in Asia at 88.90.


The euro couldn’t quite match the strength of the British Pound but it had another strong day on Wednesday, rising to USD1.24 for the first time since December 2014. Whilst the ECB worries about whether EUR strength will hinder progress towards its inflation objective by weighing down on the cost of imported raw materials and forcing exporters into more cost-cutting to remain internationally competitive, it seems to be doing no harm at all to the broader Eurozone economy.
Yesterday’s ‘flash’ PMI surveys were remarkably upbeat. The headline Eurozone PMI rose to 58.6 in January, up from 58.1 December and its highest since June 2006. An acceleration of service sector growth to the fastest since August 2007 was partly countered by a slowdown in manufacturing output growth, though the latter remained very buoyant. The latest three months have seen the strongest factory output increase since 2000. The Press Release noted, “The eurozone started 2018 with a further acceleration of growth to a near 12-year high, accompanied by the largest payroll gain since 2000 and the highest price pressures for nearly seven years… Activity was buoyed by a further marked and broad-based increase in new business”.
In Davos, meantime, German Chancellor Angela Merkel, French President Emmanuel Macron and Italian Prime Minister Paolo Gentiloni all did the ‘vision thing’, most especially Ms Merkel who reminded delegates that 2018 marks the 100th anniversary of the end of the first world war. The political actors a century ago ‘sleepwalked’ into a crisis, Merkel said. “This generation born after the second world war will have to prove they have learned the lessons of history. That means remaining committed to multilateralism, working together to solve problems”.
The EUR opens in Asia at USD1.2405, AUD/EUR0.6510 and NZD/EUR0.5985.


As the USD has come under sustained selling pressure throughout the past 24 hours, so USD/CAD has moved lower. It has broken below the immediate post-BoC low last Wednesday of 1.2375 and fell to an intra-day low of 1.2320 around lunchtime in Europe; its weakest in exactly 4 months. When quoted the ‘other’ way round, then once USD/CAD hit 1.2345 the Canadian Dollar moved on to US 81 cents for the first time since September.
Just as all negotiators like to claim victory, there was no shortage of Canadians lining up to take credit for the CPATPP. International Trade Minister François-Philippe Champagne said his country got a better deal than the one the other nations wanted to sign back in November. "When we were in Danang we stood up for Canada. We said for this agreement to work for Canada we need to address specific issues," he said. "You saw that we were forceful in our position and since then we have worked to get agreements with our partners, notably on the cultural sector ... to protect, defend and promote out culture across Canada."
With NAFTA representatives already embarked on sixth round of talks in Montreal, they at least know Canada and Mexico are signing free trade deals with large new markets in the Pacific Rim though more immediately important for CAD currency traders – who will be digging out their charts to see that last September’s low was USD/CAD1.2104 – are November retail sales data on Thursday and then Friday’s CPI numbers.
The CAD opens in Asia this morning at USD/CAD1.2325, AUD/CAD0.9955 and NZD/CAD0.9155.

Expected Ranges

  • AUD/NZD: 1.0805 - 1.0940 ▼
  • GBP/AUD: 1.7460 - 1.7830 ▼
  • AUD/USD: 0.8020 - 0.8220 ▼
  • AUD/EUR: 0.6450 - 0.6540 ▼
  • AUD/CAD: 0.9930 - 1.0000 ▼