Foreign exchange markets appear convinced that a global trade war is unlikely to break out anytime soon, although with long bets on some currencies at record highs, investors fear complacency may be setting in.
While the Trump administration’s threat to slap tariffs on Chinese imports has heightened fears of retaliation from Beijing, it has only mildly rattled markets enjoying a multi-year rally as global economic growth picks up.
The finance ministers of the 20 big world powers meet for a key G20 summit on Monday. Currency managers are keen to see whether diplomacy breaks out or disagreements deepen between the U.S. and others in the wake of U.S. President Donald Trump’s announcement on imposing tariffs on steel and aluminum imports.
“I’m still amazed by the lack of a reaction in Asian currencies. They must be waiting for the Chinese retaliation,” said Richard Benson, co-head of portfolio investments at Millennium Global, a currency investment manager in London.
“There would be quite meaningful moves. We are talking about Asian currencies that are at their strongest for years. There is zero of this (the risk of protectionism) priced in,” he said.
Benson believes big Asian exporters are most at risk, including the South Korean won KRW= and the Taiwanese dollar TWD= as well as the Australian dollar AUD= - a proxy for Asian economic growth.
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