The USD in Focus with the Election Approaching

The USD has traded weaker since Mrs Clinton’s campaign stalled due to a new FBI probe into email usage, but the coming days mean more for the USD. Wednesday’s interest rate decision is likely to show rates remaining unchanged, but Friday’s employment data will add to the arguments for OR against a US rate-hike in December – all eyes on the data again!

AUD: As expected, the RBA held rates last night, and the currency rallied, because Governor Lowe tempered expectations of a rate-cut in the short-term.

The result of the US Presidential election is of course a huge event for the future of the USD. Trump’s difficult to decipher policies surrounding tax and debt treatment may trigger medium-term USD weakness … but a short-term flight to safety (USD buying) is still a possibility – this is an outlier event worth watching! A Trump win might hurt emerging market economies, given his view on Mexico and the need for troops on the N Korean border – South Korea being the victim of that decision.

A basket of Emerging Market currencies shows a 17% climb this year, so the market feels positioned for a ‘stable’ Clinton win, but allows scope for a big down-move. Whilst Clinton’s policies of reduced tax & increased spending are likely to drive up interest rate expectations and USD demand in the medium term.

GBP: Trade and currencies are inherently linked, often amplifying each other’s effects. The collapse of GBP has been a boon for exporters, as trade data is showing, but the balance between import and exports is often the most important factor, and takes time to feed through into the real economy. Today’s PMI data confirmed that currently, UK export orders are ‘robust’, but was accompanied by: Rob Dobson, an economist at Markit. “The downside of the weaker currency is becoming increasingly evident, however.”

After the collapse / state-supported re-structuring of Hanjin, yesterday saw 3 Japanese shipping companies combine forces. Nippon, Mitsui & Kawasaki now control 7% of the world container shipping industry and the Japanese stock market rose on the back of it. Maersk CEO immediately stated that mergers of this nature are necessary to sustain the industry. This shows how global trade has been obliterated – industry giants are finding synergies to protect against total collapse.

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