Aussie Dollar Drops, Yen Gains as Trade War Fears Sour Sentiment

TALKING POINTS – YEN, AUSTRALIAN DOLLAR, YUAN, TRADE WAR, FED

• Australian Dollar down, Yen up as trade war fears grip APAC markets
• China sharply devalues Yuan after Trump decries US Dollar strength
• S&P 500 futures hint risk aversion to continue into the end of the week

The sentiment-sensitive Australian Dollar fell while the anti-risk Japanese Yen traded higher as investors’ mood soured in Asia Pacific trade. An MSCI index tracking regional shares’ performance shed 0.3 percent. Trade war fears probably drove the selloff as the US mulls a tariff hike on auto imports as well as an additional $200 billion in duties aimed at China.

Background - A Brief History of Trade Wars, 1900-Present

For its part, Beijing prodded Washington with the largest one-day depreciation of the official daily Yuan exchange rate since December 2016. The PBOC set the daily USD/CNY reference rate at 6.7671, up from 6.7066 on the prior day. That amounts to a drop of 0.9 percent for the local currency. Poetically enough, the move came just hours after US President Trump decried the recently stronger US Dollar.

Looking ahead, a lackluster offering of second-tier European economic data and a bit of Fed-speak seem unlikely to overwhelm sentiment-driven price action. St. Louis Fed President James Bullard is due to speak, but his vocally dovish disposition is well-established and ought not to be market-moving. Meanwhile, S&P 500 futures are pointing lower to suggest a risk-off mood is likely to prevail into the week-end.

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ASIA PACIFIC TRADING SESSION

EUROPEAN TRADING SESSION

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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