Recent announcements from Trump have adversely affected the valuation of the Canadian dollar and the Mexican peso. On the other hand, the Japanese yen has been gaining in recent days, despite a lack of visible risk aversion in the market. This could be a result of a slight increase in expectations that the Bank of Japan will raise interest rates in December. The USD/JPY pair is below the 152.00 level this morning.
Donald Trump has not yet officially taken office as President of the United States but has already stirred the atmosphere by officially announcing the introduction of new tariffs on his first day in office. Concrete figures have been mentioned, with a 25% level of duties on all goods from Canada and Mexico, and an additional 10% on those originating from China. If it has been said that this will happen on the first day of the new presidency, then evidently, Trump wanted to show how much he prioritizes these changes and that he plans to consistently fulfill his “promises”. The media have called this “scare tactics”, but the stock market did not panic. Only the currencies of the mentioned countries suffered. The depreciation of the CAD and MXN was accompanied by the strengthening of the JPY.
The strength of the Japanese currency can be attributed to several factors. Firstly, the JPY has been exceptionally weak in recent days, and the current USD/JPY rate declines can be seen as a simple technical correction. The exchange rate rose sharply in October and November, and perhaps some investors are now closing their transactions. This is a rather straightforward and uncomplicated interpretation. It could also be assumed that tariffs on China of an additional 10% in the first step, rather than 60% as previously anticipated, was interpreted positively for the JPY. Moreover, there may be some relief in that Japan itself (at least for now) is not in Trump’s crosshairs.
Regardless of the decisions of the president-elect regarding trade restrictions, the market is increasingly speculating about a rate hike by the BoJ. Whereas at the start of November the chance of such a scenario was considered around 30% probability, the current market valuation points to over 65%. In the short term, the yen thus has the potential for greater strength. However, this could quickly come to an end if the Bank of Japan’s move in December turns out to be the end of a short and symbolic tightening cycle.
Author: Łukasz Zembik, Oanda TMS Brokers
Source: https://ceo.com.pl/zapowiedzi-trumpa-oslabiaja-cad-i-mxn-jen-zyskuje-na-spekulacjach-o-podwyzce-stop-boj-17947
