· The dollar gained on Monday after the United States and Mexico reached a deal to avoid tariffs, while the euro faltered after sources said European Central Bank policymakers were open to cutting interest rates should economic growth slow.
On Friday, Mexico agreed to rapidly expand an asylum program and deploy security forces to stem the flow of Central American migrants to the U.S. border. U.S. President Donald Trump had threatened to impose 5% import tariffs on all Mexican goods starting on Monday if Mexico did not commit to do more to tighten its borders.
The Mexican peso surged more than 2% on news of the resolved trade issue.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 96.731 after touching levels above 96.8 last week, but still off highs above 97.6 last week.
· The Chinese onshore yuan weakened to a new level for 2019 on Monday, after comments from China’s central bank governor and unexpected trade data dragged on the currency.
The onshore yuan softened to 6.9352 to the dollar in the morning — the weakest point this year — from levels around 6.90 last week. The offshore yuan, meanwhile, was at 6.9538 against the dollar in the morning.
Although the offshore trade, which is subject to less control by Chinese authorities, was off its intra-day weak point of 6.9619 from last Friday, it was still substantially higher than its levels around 6.92 for much of last week.
Of note for the currency: On Friday, People’s Bank of China Governor Yi Gang said there was no specific yuan level that was more important than another. He had told Bloomberg News he doesn’t think “any number is more important than other numbers,” when asked if there was a red line for the yuan.
“There is obviously a link between the trade war and the movements of renminbi,” Yi told Bloomberg, adding that “a little flexibility” in the yuan was good for the economy.
A weaker yuan makes Chinese exports more attractive, giving them a competitive advantage in international markets, in addition to offsetting the costs of tariffs on Chinese goods.
· Investors have been keeping a close watch on the Chinese yuan because it is seen as a key indicator amid the intensifying U.S.-China trade war. Many are focused on whether it will breach the historically significant 7-yuan-per-dollar level.
· DBS currency strategist Philip Wee suggested that China’s trade data on Monday contributed to the yuan slide.
“Today’s weak trade data out of China was a stark reminder, not only to China but also to the rest of Asia, that Fed cut hopes could not eclipse Trump’s tariff threat, ” he told CNBC in an email.
· President Donald Trump confirmed on Monday that additional tariffs on Chinese goods will be levied if Chinese President Xi Jinping does not attend this month’s G-20 meeting.
When asked during a telephone interview if that means the new tariffs would go into effect immediately, Trump told CNBC’s Becky Quick, “Yes, it would.”
The president previously threatened to put levies on another $300 billion in Chinese goods if a trade agreement is not reached soon. The Trump administration increased tariffs last month on $200 billion worth of goods the U.S. imports from China.
· President Donald Trump’s comments on Huawei on Monday seem to conflict with statements made just hours earlier by Treasury Secretary Steven Mnuchin, creating a problematic situation for the White House’s stance against the company.
Mnuchin, speaking to CNBC on Sunday from Japan, said that Washington’s concerns about Huawei are “national security” issues separate from trade that will be “resolved one way or another.”
Then, Monday morning, Trump called into CNBC’s “Squawk Box” and said, “I do see it as a threat. At the same time it could be very well we do something with Huawei as part of trade negotiation with China. China wants to make a deal. They want to make a deal much more than I do.”
· President Donald Trump told CNBC on Monday he believes China will make a deal with the U.S. “because they’re going to have to.”
“The China deal is going to work out. You know why? Because of tariffs,” Trump told co-host Joe Kernen. “Right now, China is getting absolutely decimated by companies that are leaving China, going to other countries, including our own, because they don’t want to pay the tariffs.”
· President Donald Trump said China has given itself a “tremendous competitive” advantage by weakening its currency, and the playing field needs to be leveled.
Trump, during a telephone interview with CNBC’s “Squawk Box, ” said the ability of Chinese President Xi Jinping to directly impact monetary policy is an unfair advantage. Trump made the comments as the Chinese yuan traded near its low of the year against the U.S. dollar.
“We should be entitled to have a fair playing field ... because our Fed is very, very disruptive to us,” he said. “Even without a fair playing field, we’re winning because the tariffs are putting us at a tremendous competitive advantage.”
“Don’t forget, the head of the Fed in China is President Xi. He’s the president of China. ... He can do whatever he wants. They devalue, they loosen or you would just say they pump a lot of money.
· Oil prices settled lower after a choppy trading session on Monday, as major producers Saudi Arabia and Russia had yet to agree on extending an output-cutting deal and U.S.-China trade tensions continued to threaten demand for crude.
U.S. West Texas Intermediate crude futures settled 73 cents lower at at $53.26 per barrel, falling 1.4% on the day and settling later than usual on Monday.
Front-month Brent crude futures, the international benchmark for oil prices, fell $1 per barrel, or 1.6%, to $62.29.
· Saudi Energy Minister Khalid al-Falih said on Monday that Russia was the only oil exporter still undecided on the need to extend the output deal agreed by top producers.
· Moscow is considering whether further cuts could allow the United States to take Russian market share and has yet to signal whether it will continue to curb its supply.
Reference: CNBC
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