Therefore, we’ve seen very bold changes to tariffs propaganda of President Donald Trump. In actual fact, he imposed a greater than 5.5-6.0 percentage point trade-weighted average effective tariff rate on all U.S. imports. This move raises tariffs to heights not seen since the immediate post-Second World War period. These changes promise to greatly affect international trade dynamics, as well as currency markets.
The impact of the increase in U.S. tariffs will deeply affect some of Japan’s most significant bilateral exports tremendously changing trade flows and economic policies. Over time, these tariffs could become less effective. To reposition themselves in an emerging global economy, countries will need to change their trade routes. Despite the brewing geopolitical storm, the USD/JPY currency pair has jumped to its highest level since late July. With the help of a little bump in the U.S. dollar, it’s now trading back over the 151.00 threshold.
The Australian Dollar (AUD) sees consolidation near the 0.6300 level against USD. Meanwhile, the U.S. Personal Consumption Expenditures (PCE) Price Index, a key inflation measure, is expected to have an outsized influence on AUD/USD price swings. Traders are looking ahead to more economic clues from the latest inflation report. Expectations for more stimulus action from China are supporting the Australian. This support goes a long way in offsetting the downward pressure from increasing trade tensions and a more entrenched risk-off market sentiment.
In Japan, CPI figures from Tokyo, the capital city have beat estimates. This amendment paves the way for more hawkish and aggressive rate hikes by the BOJ. Such a development would be supportive in containing further downside risk to the Japanese Yen (JPY). In addition, it contends with pressures from appreciating U.S. dollar gains and negative trade expectations. Higher nominal interest rates provide a defense against the possibility of future JPY devaluation. With rising interest rates and inflation impacting all sectors, this protection is more essential than ever.