DXY was up Friday night:
AUD was down again:
With North Asia this time:
The specs are still marginally long:
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All items were destroyed:
Miners in trouble:
Emerging Market Stocks Retest Breakout:
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Good scrap:
The curve is flat:
Stocks sold again:
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These moves suggest that trade with Trump is being priced in light of the potential for tariffs and reduced immigration:
- revenue support;
- Killing China’s growth prospects has led to lower commodity prices;
- The US Dollar Index was prevented from falling due to the Fed cuts.
Can Trump turn things upside down with his policy toward the weak dollar? Goldman Sachs has more details.
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Deal with cash deals.
If the CEO wants a weaker currency, that outcome is certainly achievable.
But outside the regular fluctuations of the business cycle, this would require a concerted and coherent political effort, which seems unlikely even if former President Trump is elected to a second term – largely because it would conflict with the rest of his fiscal and trade policies.
We doubt that a comprehensive “currency pact” like the Smithsonian or Plaza Accords can be achieved without a very different mix of policies.
The structure of the foreign exchange market has changed dramatically since then, making it difficult to implement centrally planned foreign exchange agreements (Exhibit 1).
One important thing has not changed – for foreign exchange intervention to be successful, it is useful for market forces to push in the same direction as the intervention.
This was the case before the two important currency agreements; it is no longer the case.
If the United States really wants to take the path of intervention, it faces significant practical obstacles to overcome.
While both the Treasury and the Federal Reserve have the authority to intervene in currency markets, Treasury money is limited.
In order to intervene of any significant size, the Treasury would need to persuade the Fed to use its balance sheet to implement the administration’s exchange rate policy (this is not the Fed’s legal responsibility).
Beyond the operational complications this would entail, any coordinated currency deal with consequences would require the Fed to buy less liquid and lower-rated assets such as US Treasuries, while the administration would essentially encourage foreign trading partners to sell US Treasuries – something that would seem to conflict with other stated policy goals such as preserving the dollar’s status as a reserve currency.
Beyond intervention, there are other options for managing a weak currency, such as reducing U.S. financial support and persuading trading partners to spend more in ways that will support domestic consumption.
Again, while this would weaken the dollar, it would also require a shift away from other policies.
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I can’t see China agreeing to the Plaza Accord, even if it should.
Thus, Trump’s tariffs, tax cuts, and immigration cuts will be positive for the dollar index, preventing sharp declines as the Fed cuts interest rates.
These cuts could still boost the AUD in the near term, but Trump’s tariffs are already crushing commodity prices via two channels: a strong dollar index and weak Chinese growth, prompting the RBA to cut rates globally, so 2025 looks like another tough year for the AUD.
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