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Daily analysis 13.04.2017

13 Apr 2017 12:21|Marcin Lipka

Yesterday’s interview with Donald Trump caused the dollar to wear-off. However, the strong yen continues to indicate that the risk aversion in the market has been higher. The zloty remains relatively stable and only the USD/PLN was pushed below 4.00.

Most important macro data (CET – Central European Time). Estimates of macro data are based on Bloomberg information, unless marked otherwise.

  • 14.00: Poland’s current account balance (negative 31 million euros).
  • 14.30: Weekly jobless claims from the USA (estimates: 245k).
  • 16.00: The University of Michigan consumer sentiment index (estimates: 96.5 points).

Trump’s comments for WSJ

Last evening, The Wall Street Journal published a series of articles and podcasts after approximately seventy-minutes-long interview with President Donald Trump. Three topics that were included in this interview might have had an impact on the dollar.

“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting—that will hurt ultimately,” said the American president. Further on, he said that, “It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency.” However, these most likely were not the comments that caused the USD to wear-off. These views have already been suggested by Donald Trump before and this only was a confirmation.

It seems that Trump’s statements regarding interest rates were far more significant. This is especially that they were related to information regarding the new Federal Reserve members. “I do like a low-interest rate policy, I must be honest with you,” said the American president. The Wall Street Journal also informed that Donald Trump is open for the possibility of renominating the Federal Reserve chairwoman, Janet Yellen, once her tenure is up next year, even though he was against this idea during the election campaign.

Steve Mnuchin, the US Secretary of the Treasury, was also present during some period of this interview. He said that Donald Trump is very close from appointing the Federal Reserve vice-chair, as well as from filling vacant posts in the Board of Governors. The market has most likely related this with the president’s statements regarding low interest rates and expects that Trump will appoint people who would be more dovish than the Fed consensus. This would explain strong changes in the American treasury bonds. Profitability of the five-year bonds were pushed to 1.75%, which is their lowest level since the second half of November 2016.

The final matter in this interview referred to China. Donald Trump said that this country will not be considered a “currency manipulator” in the next report from the Department of the Treasury. Even though this information seems rather positive for the dollar, the impact of Trump’s previous statements was significantly larger, as well as negative.

Despite that, in the long-term the dollar will mainly be determined by the Federal Reserve decisions and expectations regarding the fiscal changes. The chances that appointing dovish members of the Board of Governors would slow down the monetary tightening seem to be limited for the time being. However, the monetary policy may actually turn in a more dovish direction, once the American administration would withdraw from its promises regarding fiscal changes. This would increase depreciation pressure on the USD significantly. Nevertheless, the above cited interview has not suggested such scenario.

Limited impact on zloty

It appears that Donald Trump’s comments had the largest impact on the South Korean won, which strengthened against both the euro and the dollar. Decreasing tension between the USA and China, as well as lower evaluation of the American currency, are positive for the emerging markets. Significant growth was also quoted on the Mexican peso. However, those emerging market currencies that are not directly determined by the American trade policy, have remained relatively stable. This includes the zloty, as well as the forint.

In addition, the yen remains strong, which is rather not helping the EM currencies. Yesterday’s events should have a limited impact on the majority of the zloty pairs. Only the USD/PLN has changed its rate by 0.02 PLN.

13 Apr 2017 12:21|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

12 Apr 2017 15:26

Afternoon analysis 12.04.2017

12 Apr 2017 12:21

Daily analysis 12.04.2017

11 Apr 2017 15:27

Afternoon analysis 11.04.2017

11 Apr 2017 12:20

Daily analysis 11.04.2017

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