Dollar Victorious as Asia Slumps Over Trade Battle Fears

James Randall

US President Donald Trump’s ongoing penchant for sanctions and trade intervention continued to make waves in the international foreign exchange market today.

In the latest round of trading barrier construction, the administration levied sanctions on Iran which took effect in the early hours of this morning. The sanctions cover everything from the trade of precious metals to the purchasing of the US dollar and are supposedly a result of US dissatisfaction with Iran’s performance in the 2015 nuclear deal.

The dollar received a boost as a consequence of the move. The dollar index, which measures its performance compared to six different international currencies, reached 95.515 – its best position in almost a month.

However, as seems to be increasingly commonplace in the forex markets, the dollar was largely the only victor.

The development sparked a decline in many Asian currencies. In South Korea, for example, the local currency, the won, plummeted in value by 0.13%.

In India, the rupee managed to stay afloat and even gained 0.1% during trading. However, the subcontinental nation’s government is clearly worried as it has hit out at the US’ decision to impose tariffs on Iran. Despite its one-day surge yesterday, the rupee is still performing badly overall.

Part of the day’s troubles in Asia were also due to continued pessimism around China. The trade battle between the country and the US is still ongoing, and China has threatened to respond to threats of new tariffs with more of its own.

Much was happening elsewhere on the forex markets on Tuesday as well.

The Reserve Bank of Australia met trader expectations by holding interest rates at 1.5%, where they’ve been for the last two years.

Attention will now turn to a statement by the bank governor, Philip Lowe, which takes place tomorrow. In the speech, Lowe may well touch on the bank’s reasons for keeping rates where they are, and could even indicate whether a change is on the cards next time around.

Other significant information releases are on the horizon for the rest of the week. The Reserve Bank of New Zealand will announce its official cash rate on Wednesday, with preservation at the current rate of 1.75% also expected to be the order of the day.

On Friday, China will release data on new yuan loans for July alongside a suite of aggregate financing and money supply information, all of which will be avidly consumed by yuan traders looking for insights.

Britain’s second-quarter gross domestic product (GDP) data will also be out on Friday, while its construction output and manufacturing production information will make an appearance too.

Some smaller and emerging markets have important releases coming out this week as well. Mexico, for example, will release its July consumer price index data on Thursday, while the Philippines will see its central bank announcing an interest rate decision on Thursday.

Inflation in the country went up by 0.5% in June, fuelling predictions that a rise in rates may be on the way when the announcement is made.

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James Randall
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