•The dollar hit a four-month high against the Chinese yuan but was lower against the yen and Swiss franc early Monday in Europe as the worsening trade conflict between the U.S. and China prompted bids for ‘safe-haven’ assets.
At 03:00 AM ET (0700 GMT), the dollar was at 109.73 yen, down 0.2% from late Friday, and having dipped as low as 109.60 overnight. That was just a little above the three-month low that the pair hit on Friday as a fresh round of U.S. tariffs on Chinese imports came into force.
The dollar hit a new four-month high against the yuan of 6.8654 overnight.
The dollar index, which measures the greenback against a basket of six major currencies, was at 97.340, effectively unchanged from Friday as weakness against havens was offset by a rise against risk proxies such as the Aussie and loonie.
•Anthony Kettle, a senior portfolio manager with BlueBay Asset Management, said it was “logical” that any deal to settle the dispute will now be delayed and that global growth in the second quarter could suffer as a result.
•USD/JPY’s 4-hour chart shows the relative strength index has created higher lows, contradicting the lower highs on the price chart. That bullish divergence represents temporary bearish exhaustion, meaning the stage is set for a corrective bounce to 110.28, especially if the risk appetite improves somewhat.
The USD/JPY pair daily chat shows that the bearish potential remains strong, as technical indicators barely pared their declines, now consolidating near oversold readings, as the pair develops far below all of its moving averages. In the shorter term, and according to the 4 hours chart, it settled around a sharply bearish 20 SMA, while below the 23.6% retracement of its latest downward move, measured between 112.39 and 109.46 at around 110.15.
Support levels: 109.45 109.10 108.80
Resistance levels: 110.55 110.50 110.85
•Analysts at the US investment banking giant, Goldman Sachs, offer their outlook on the USD/CNY pair in the wake of the US-China trade impasse.
Key Quotes:
“Maintains their 6 and 12-month forecasts for the Yuan at 6.65 and 6.60 respectively due to an expected trade deal in coming months.
But challenges and uncertainty remain.
Lowered the 3-month forecast to 6.95 from 6.65 to the USD.
The risk has risen for further tariff hikes from the US.
China's monetary and fiscal policy will remain supportive of growth stability.”
•Beijing has a host of options to retaliate against the latest the hike in U.S. tariffs on Chinese imports, experts said on Monday.
•“I expect that China will retaliate and they will do it in as commensurate a way as they can, and that will include not just imports,” said Susan Shirk, former deputy assistant secretary of state during the Clinton administration. “I think our farmers and our farm exports to China will be targeted because that’s what President Trump cares about politically,”
She added that she expects added pressure on American firms operating in China, potentially including a slowdown in approvals for banks and checks on imports.
•“Really anything could be fair game, and I would be extremely surprised if there were no retaliation,” said Shirk, who is now the 21st Century China Center chair at the University of California San Diego School of Global Policy and Strategy.
Another option for Beijing’s retaliation could include currency depreciation, analysts said. That is, a drop in value for the yuan would give Chinese exports a trade advantage and potentially offset the impact of U.S. tariffs.
•Many have cautioned that China could dump its more than $1 trillion worth of U.S. debt in retaliation, but one expert told CNBC on Monday that such a move would ultimately not be in the country’s best interest.
“The largest holder of U.S. Treasurys in the world is China, and so they hurt their own balance sheet as much as they incrementally hurt the U.S. and the losses that they would be forced to recognize are very, very real,” said James Sullivan, head of Asia ex-Japan equity research at J.P. Morgan.
•China’s intensified tariff war with the Trump administration is threatening Beijing’s ambition to transform itself into the dominant player in global technology.
The United States is a vital customer and source of technology for Chinese makers of electronics, medical equipment and other high-tech exports — industries that the ruling Communist Party sees as the heart of its economic future.
China might now have to take the “tougher route” of developing more of its own technology, with less access to foreign partners and know-how, said Rajiv Biswas, chief Asia economist for IHS Markit.
“It may be a slower path,” Biswas said.
•As the relationships between countries shift over the next few decades, expect trade to remain a hot button issue, according to one analyst.
“As we start to move toward a multi-polar world, I think we have to recognize that these trade conversations are not fits and starts,” Sullivan told CNBC’s “Squawk Box” on Monday. “I think we have to recognize as equity investors, in particular, this is now the new normal.”
“These trade conversations are now part of the backdrop of global markets for the next ... 10 to 20 years as these countries and economies work out their relative place in the world and how we reorder the overall global structure to account for the rise of China, to account for a multi-polar environment,” he said.
•Oil futures rose on Monday on increasing concerns about supply disruptions in the crucial producing region of the Middle East even as investors and traders fretted over global economic growth prospects amid a standoff in the Sino-U.S. trade talks.
Brent crude futures were at $71.00 a barrel, up 38 cents, or 0.5%, from their last close by 0624 GMT.
U.S. West Texas Intermediate (WTI) futures were at $61.73 per barrel, up 7 cents, or 0.1%, from their previous settlement.
Saudi Arabia said on Monday that two Saudi oil tankers were among vessels targeted by a “sabotage attack” off the coast of the United Arab Emirates, condemning it as an attempt to undermine the security of global crude supplies.
•Thailand’s central bank has not intervened in the trading of the baht for an advantage in trade with the United States, an assistant governor said on Monday.
Thailand could be added to an expanded U.S. list of currency manipulators and the country is ready to exchange views with the United States, Chantavarn Sucharitakul said in a short text message to reporters.
•Thai exporters are expected to pay a heavy price as the ramping up of the US-China trade war continues.
In 2018, Thai exports grew by 6.7% year on year. As a result of the trade war escalation, various financial institutions have cut their export forecasts for 2019 to less than half of last year’s growth.
“If US-China trade tensions continue to escalate, Thai export growth for 2019 is likely to be lower than our recent forecast of 2.7%,” said Yunyong Thaicharoen, first executive vice president and head of Siam Commercial Bank’s Economic Intelligence Centre.
“In particular, goods in the supply chain affected by the trade war, such as computers and parts, integrated circuits and rubber, have already shown a year-on-year contraction of between 18 and 25% in the first quarter of this year.”
Reference: Reuters, CNBC, FX Street, The Thaiger
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