Yen And Other Safe Haven Currencies Firm In The Face Of Worsening Risk Sentiment
The uncertainty surrounding the trade war between the U.S. and China is fueling a surge in demand for the Japanese Yen. Last Friday, the U.S. came through with a threat to impose higher tariffs on Chinese goods worth over $200 billion, roiling global markets. As a result, haven currencies like the Yen and the Swiss franc rallied to highs last seen months ago.
The U.S. raises tariffs on $200 billion of Chinese goods from 10% to 25%
Since before being elected, US President Donald Trump complained of unfair trade balance between the U.S. and China. Later in 2017, the U.S. launched an investigation into the issues surrounding the trade imbalance and decided on higher tariffs on billions of Chinese goods. However, China retaliated with its round of higher tariffs hence setting off a trade war.
In the latest round of tariffs, the U.S. raised tariffs from 10% to 25% on goods from China worth around $200 billion. Notably, the tariff hike flies in the face of market expectations. In particular, the general expectations in the market were that the two world economic giants would reach an agreement before any tariff hike. Caught unawares, many traders seem to have dumped high-risk assets like the Yuan, the Aussie and the US dollar for safer assets like the Yen and the Swiss franc.
Yen and the Swiss franc rally
To be sure, the Yen rallied against the greenback in early trading hours Monday in Asia-Pacific markets. Notably, the USD/JPY pair fell around 0.2% to 109.69. Late last week, the pair was quoted at 109.470, a value which was last seen three months ago. The strong performance by the Yen was mirrored by the Swiss franc which also rallied against the US dollar. On Friday last week, the greenback pared 0.05% of the gains it had made against the Swiss franc in the previous few weeks. In particular, the currency sunk to a one month low of 1.0098 during the Friday trading session.
The Australian dollar is another heavy victim of the latest twist in the U.S.-China trade war. For starters, China is Australia's largest trading partner, and the Aussie happens to track the movement of global risk sentiment. In particular, the currency shows a declining trend in the face of worsening risk sentiment. To be sure, the Aussie declined by the most significant margin against the Yen where it slipped to 76.34 yen last week.
The future of trade remains bleak
Despite the decline in optimism in the global markets, other majors remained flat. This is evidenced by the insignificant change in the US Dollar index where it remained unchanged at 97.318. Also, the Euro did not register significant changes against the greenback where it remained stuck at $1.1231. As such, it was evident that traders are increasingly buying up safe-haven assets.
This trend is likely to go on for as long as the trade war talks remain in deadlock. According to a prediction by a JP Morgan analyst, the breakdown in the trade talks could signal more trouble for global markets. As per the analysts, the trade is a sign of a world drifting towards being multi-polar and that trade could remain a flashpoint in the next 10 to 20 years.