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And trade war fears are back! China set the date for matching the latest set of tariffs from Uncle Sam, reminding traders that things could still get ugly from here.

Since the retaliatory measures are aimed at the U.S. economy, the dollar was forced to return its earlier gains and fall behind most of its peers, except for the pound which was stuck in last place.

Later in the session, a slightly more dovish tone from the RBNZ also dragged the Kiwi down.

  • Canada’s building permits down 2.3% vs. projected 0.1% dip
  • U.S. EIA crude oil inventories down 1.4M barrels vs. expected 2.8M drop
  • RBNZ kept rates on hold at 1.75% as expected
  • RBNZ: Moderation in growth could last longer
  • RBNZ: Low business confidence could hurt investment and employment
  • RBNZ: Next move could be up or down
  • RBNZ downgraded growth, interest rates, and exchange rate forecasts
  • China to impose 25% tariffs on additional $16B U.S. imports by Aug. 23

Major Events/Reports:

China to match U.S. tariffs

The trade spat between the U.S. and China was the stuff of headlines as Beijing went “I see your 25% tariffs on $16 billion worth of our goods, and I raise you 25% on $16 billion of your goods.”

These measures from China are set to take effect on August 23, which is also the same day when U.S. tariffs will be in play. China also increased the number of goods to be targeted from 114 to 333, which still includes large vehicles, oil, coal, chemicals, and some medical equipment.

Although many already saw this move coming, what got most market watchers worried is the likelihood that China will also match the Trump administration’s next set of tariffs on $200 billion of their goods. Looks like the stakes could still get much higher and quick!

Safe-haven flows return

The latest announcement from China prompted a round of risk-off moves in the financial markets, forcing most U.S. equity indices to snap their winning streak this week.

  • Dow 30 index is down 45.16 points to 25,583.75 (-0.18%)
  • Nasdaq is up 4.66 points to 7,888.33 (+0.06%)
  • S&P 500 index is down 0.75 points to 2,857.70 (-0.03%)

Gold raked in gains from safe-haven demand while crude oil took major hits. After all, crude oil is included in the list of goods that China will target in its new set of tariffs, and it didn’t help that EIA data revealed a smaller reduction in U.S. stockpiles.

  • Gold is up $2.88 to $1,213.83 per troy ounce (+0.24%)
  • WTI crude oil is down $2.40 to $66.77 per barrel (-3.46%)

RBNZ’s “dovish hold”

The latest RBNZ announcement confirmed that New Zealand’s central bank is staying behind its peers when it comes to jumping on the tightening bandwagon.

As expected, policymakers agreed to keep rates unchanged at 1.75% but analysts dubbed this as a “dovish hold” because the official statement and presser mostly highlighted risks.

In RBNZ Governor Orr’s opening remarks, he noted:

“Risks remain to our central forecast. The recent moderation in growth could last longer. Low business confidence can affect employment and investment decisions.”

As for inflation, he also mentioned that the path might be “bumpy” as price levels make their way toward the 2% target due to “one-off price changes from global oil prices, a lower exchange rate, and announced petrol excise tax rises expected.”

The actual monetary policy statement also featured downgrades to growth and interest rate forecasts. While it kept the rate forecast at 1.8% in December, it lowered the estimate from 1.9% to 1.8% in September and December 2019. Guess they won’t be tightening anytime soon, huh?

The central bank also lowered their estimate for the TWI (trade-weighted index) from 74.0 to 72.8 in September next year, basically projecting a lower exchange rate for the Kiwi until then. It also stated:

“We expect to keep the OCR (where it is now)  through 2019 and into 2020 longer than we projected in our May Statement.  The direction of our next OCR move could be up or down.”

During the presser, RBNZ head Orr even noted that the Kiwi is very close to fair value and that they’re pleased with exchange rate levels so far. However, he did say that they’re open to cutting rates if growth slows further beyond potential.

Major Market Mover(s):

USD

The Greenback was knocked down from a relatively positive standing the earlier session as traders once again worried how retaliatory trade measures from China could impact U.S. businesses and growth.

USD/JPY slumped from 111.19 to a low of 110.86, EUR/USD rose from 1.1583 to a high of 1.1621, USD/CHF retreated to a low of .9931, and AUD/USD is up to a high of .7431.

CHF & JPY

The lower-yielding bunch took advantage of dollar weakness to catch majority of the safe-haven flows for the session.

NZD/CHF continued to tumble to .6657, GBP/CHF dove below the 1.2800 handle, and CAD/CHF dipped to .7629.

EUR/JPY slid from 128.95 to 128.75, GBP/JPY is down to 142.82, CAD/JPY dropped to 85.17, and CHF/JPY dropped to a low of 111.44.

NZD

The Kiwi found sellers towards the latter part of the session as the “dovish hold” of the RBNZ and trade tensions combined forces to drag the higher-yielding currency down.

NZD/USD turned after hitting a high of .6759 to tumble to the .6700 mark, NZD/JPY slipped to a low of 74.30, EUR/NZD popped up to a high of 1.7334, and AUD/NZD is up to a high of 1.1023.

Watch Out For:

  • 11:50 pm GMT: Japanese core machinery orders (-1.2% expected, -3.7% previous)
  • 1:30 am GMT: Chinese CPI y/y (gain from 1.9% to 2.0% expected)
  • 1:30 am GMT: Chinese PPI y/y (drop from 4.7% to 4.4% expected)