Date: 22 Mar 2018

On Thursday, US President Donald Trump “will announce the actions he has decided to take based on USTR’s 301 investigation into China’s state-led, market-distorting efforts to force, pressure, and steal US technologies and intellectual property,” White House official Raj Shah said in an e-mailed statement yesterday. Expectations are for Trump to sign off on the moves at 1630GMT. But what might a deterioration in Sino-US trade relations means for the currency markets?  It could prompt a degree of risk aversion which might lend itself to relative weakness to currencies such as the Australian dollar (AUDUSD, EURAUD, AUDJPY) but work in the favour of “safe haven currencies” such as the Japanese yen (USDJPY, EURJPY, GBPJPY) or the Swiss franc (USDCHF, EURCHF) though in the case of the Swissy the market will be aware that the Swiss authorities would likely lean against too much of a rise in the franc’s value. The Japanese Ministry of Finance (MoF) and the Bank of Japan (BoJ) might also not necessarily favour a rise in the yen’s value but there may not be too much the Tokyo authorities could do if the market decides to move in that direction. Japanese monetary policy is already ultra-accommodative.

Traders will perhaps be aware of talk of some USD800 million of expiries in USDJPY on Thursday in the 105.75-80 area but those will have rolled off before Trump is scheduled to put pen to paper. If the currency market does decide circumstances justify a lower USDJPY it might be rational to expect 105.00 to be a key level. With talk of a plethora of knock out options that would be triggered if USDJPY trades through that level, traders might reasonably expect substantial demand for USDJPY above that 105.00 level, with interested parties hoping to prevent the pair trading below the figure, but equally that there could then be large stops just below. 301 might be the number Trump’s team are referencing but 105 might be the figure that the currency market will have its eye on.

Written by Neal Kimberley, External Currency Analyst.