Date
19 July 2018
Improving economic data in Europe and Asia would support prices of Australia’s commodity exports, boosting its currency. Photo: Reuters
Improving economic data in Europe and Asia would support prices of Australia’s commodity exports, boosting its currency. Photo: Reuters

Dollar weakens on fears of trade protectionism

The US dollar index tumbled to a one-month low of 100.37 on Tuesday amid concern about trade protectionism and rising geopolitical risks.

As a result, non-dollar currencies recovered.

The Japanese yen rallied to 113 against the dollar, the highest level in more than five weeks. The dollar hit a 10-month high of 118.66 against the yen in December.

The euro soared to one-month high of 1.0684 on Jan. 12 after a steady climb since the start of the year.

However, the euro has limited upside given political uncertainty from elections in Germany, France and the Netherlands.

The technical charts point to 1.0800 as the resistance level while a key support can be found around 1.0250.

There have been numerous voices in Germany calling for a hike in interest rates and an end to the European Central Bank’s mass bond-buying.

Germans are complaining about how low interest rates are eroding the value of their savings and fueling property bubbles.

Still, the ECB is expected to hold its course given concerns about trade protectionism and uncertainty from the upcoming elections.

The British pound plunged below 1.20 in intraday trading on Monday on renewed Brexit concerns but staged a dramatic 2.8 percent bounce the next day
to 1.2390 against the dollar after Theresa May said Britain is looking for trade agreements with the European Union.

The resistance zone for sterling is 1.2430-1.2590 while support is at 1.1720-1.2000

The Australian dollar has outperformed other major currencies this year.

It has rallied nearly 4 percent to above 0.7500 against the US dollar after it slumped to a seven-month low of 0.7160 in December.

Improving economic data in Europe and Asia would support prices of Australia’s commodity exports.

Iron ore prices are close to a two-year high and thermal coal prices hover near a three-and-a-half-year peak.

Coking coal prices touched the highest level in five years last month.

In the meantime, gold prices surged to a seven-week high of US$1,215 per ounce on Tuesday.

SPDR Gold Trust, the world’s largest gold ETF, reported its gold holding at 955.03 metric tons, up from 807.96 metric tons on Jan. 13.

That marks the first increase since Nov. 9 last year.

This article appeared in the Hong Kong Economic Journal on Jan. 18

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RT/RA

Sales director, Emperor Capital Group Limited; HKEJ columnist

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