Baku, Azerbaijan, July 5
By Anvar Mammadov – Trend:
The Trump administration’s aggressive stance on trade could prove a significant USD-negative as trade disruptions will also reduce the recycling of reserves into the greenback as US trade partners look to avoid adding to US dollar reserves or seek to avoid the currency entirely, Head of FX Strategy at Saxo Bank John Hardy told Trend July 5.
He added that the latter is particularly the case for China, which clearly has a long-term strategy aimed at raising the profile of its currency in its trade relationships.
“As China’s energy import volumes mount steeply, the launch of the yuan-denominated oil contract in Q1 is arguably a gambit to eventually supplant the petrodollar with a petroyuan,” Hardy said. “As well, let’s recall that Trump’s picking of trade fights has been as frequent with traditional geopolitical allies like those within NAFTA and the EU as it has with those further afield.”
“Trump focusing on Bank of Japan or European Central Bank policies and their implicit aim to keep the JPY and EUR weak could suddenly turn the tide in USDJPY and EURUSD,” he said. “Admittedly, the flip-side risk is actually one of CNY weakness and USD strength versus Asian EM currencies if China chooses to abandon its strong yuan policy.”
The Trump administration will impose a 25 percent tariff on up to $50 billion in Chinese goods.
In a statement Friday, President Donald Trump said the measures will affect Chinese goods "that contain industrially significant technologies." The action comes "in light of China's theft of intellectual property and technology and its other unfair trade practices," he added.
The US will initially impose a set of tariffs on 818 items worth about $34 billion on July 6.
China's retribution, meanwhile, will take the form of tariffs on 545 US goods worth $34 billion on July 6.
Follow the author on Twitter: @Anvar_Mammadov
