Trade war concerns were the main theme in currency markets overnight. President Trump announced that he was considering tariffs on $200b worth of Chinese imports if China was to retaliate against his previously announced tariff hikes. China responded swiftly stating they intended to take “comprehensive quantitative and qualitative measures” if Trumps proposed measures are implemented. This escalation in tensions between the world’s two largest economies is unnerving investors and a risk-off tone has returned to the market. The Japanese Yen gained around 1%, while the Australian Dollar (often seen as the markets favoured China FX proxy) fell by 1%. Global equities were once again lower, with Wall Street down over 1% overnight.
Results from the Global Dairy Trade Auction overnight saw prices down 1.2% in USD terms following on from a 1.3% decline at the previous auction. These weaker prices have been countered by recent NZD weakness which in effect has resulted in a gain of 0.7% in NZ Dollar terms. Weaker commodity prices and the general risk-off tone in the market has seen the NZD fall overnight, although the Kiwi did remain firm against other commodity currencies.
The Euro lost ground as ECB President Mario Draghi reinforced the dovish message from last week’s ECB meeting. Draghi confirmed that the ECB will adopt a patient approach to tightening monetary policy, signalling that interest rates will remain on hold until late next year.
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