- Investors retreat into safe-haven yen on the back of continued US-China trade tensions
- UK political crisis puts further pressure on market sentiment
- New Zealand dollar hits a four-year low after weak business confidence data
Thursday morning saw the yen climb against the US dollar as investors continue to remain on edge regarding the potential fallout from the US-China trade war that keeps escalating. Investors seem to believe there is little chance of a positive resolution to the situation in the near future.
The yen climbed by 0.2% against the US dollar to trade at 105.83. This marks a significant gain, with the growth of 2.5% being the largest monthly increase in the past quarter.
Market sentiment pressured by a no-deal Brexit
Another contributing factor to the poor sentiment is the market’s belief that a no-deal Brexit is increasingly likely. The political crisis in the UK escalated after PM Boris Johnson decided he would suspend parliament for over a month before Brexit.
While it will mean that his opponents will have less time to derail a no-deal Brexit, it also increases the likelihood of a vote of no confidence against the PM and government. This could mean early elections.
Seema Shah, the chief strategist at Principal Global Investors in London, stated that, economically speaking, “actively pursuing a no-deal Brexit through suspending parliament is tantamount to actively pursuing a recession.”
The effects of the Brexit situation are already being felt across Europe. For example, the recent decline in Germany’s export figures isn’t caused by the trade war, but by lower sales to the UK.
Chinese comments allay investor fears
On Wednesday, US President Donald Trump officially imposed the additional tariff of 5% on Chinese goods worth $300 billion. September 1 and December 15 were declared collection dates for the said tariff.
Instead of retaliating, on Thursday the Chinese government stated that officials from Beijing and Washington D.C. were working together to set up talks for September.
Gao Feng, the spokesperson for the Chinese ministry, stated that the goal for the talks is to have a calm discussion to prevent further escalations, as well as to solve existing trade problems between the two countries.
Investors were reassured, which led to the US dollar recouping its losses against the yen. During the mid-morning US trading session, the USD/JPY was trading at 106.45.
The comments out of China helped the USD climb against other major currencies as well. The US dollar index rose to 98.368, equating to an increase of 0.3%.
NZ dollar declines due to poor business confidence
The New Zealand dollar hit a four-year low against the USD on the back of a weak ANZ Business Confidence indicator, which dropped to -52.3. This is the lowest this indicator has been since 2008 and shows a significant drop from its July level of -44.3.
The NZD/USD was trading at 0.6309, which worked out at a loss of 0.4%. This is the lowest the NZD has been since the end of Q3 2015.