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One day left as fresh Chinese trade barriers loom

The global foreign exchange markets found themselves in a state of uncertainty on Wednesday as the deadline for US President Donald Trump to impose yet more tariffs on China appeared to be close to running out.

President Trump has threatened to add $200 billion of tariffs onto the trade exchanges which take place between the two countries. The US has already imposed tens of billions of dollars’ worth of levies on its Asian trading foe, and China has responded in kind.

The US has held a short period for feedback on the idea of new tariff impositions to be submitted. However, this period is due to expire within 24 hours, meaning the arrival of the new tariffs could occur as soon as tomorrow.

The dollar has been riding high on the back of the increase in trade tensions in the last few months. The currency is seen as a “safe haven” for investors when trade barriers go up, and it often rises in value as a result of investments in riskier or export-heavy currencies getting pulled.

The South African rand, for example, slipped around 3% compared to the US dollar yesterday.

Overnight, the dollar index, a tool for assessing the currency’s performance compared to its competitors,  reached 95.403.

This was close to its peak in the last fortnight, which was 95.737.

Despite the uncertainty around which twist the trade saga will take next, analysts quoted by Reuters are on the whole confident that President Trump will press ahead with at least some form of sanction – suggesting that even more rises for the dollar could be on the way.

However, the dollar’s strength has come from other sources too. Positive economic data released in the last few days, for example, revealed that manufacturing activity in the country is at its highest rate in 14 years.

While the outcome of the next chapter in the ongoing trade battles is awaited, the currency markets will now turn to the economic calendar releases scheduled for the rest of this week.

Canada’s central bank, the Bank of Canada, will release its interest rate decision later today. It currently sits at 1.5% and is expected to remain there – mimicking exactly the equivalent decision made by the Reserve Bank of Australia earlier in the week.

Tomorrow will see Australia in the headlines again when the country’s import and export data is released overnight. Given that Australia is a major Chinese trading partner and has seen its currency suffer in recent weeks as a result of the trade battles, this data is likely to hold interest for many forex traders.

A series of major US data points will be released later on Thursday, including continuing and initial jobless claims as well as unit labour costs for the second quarter of the year.

Monetary policy watchers will also be interested to hear a speech from the Reserve Bank of New Zealand’s governor, Adrian Orr, which comes out at 9.30pm GMT on Thursday.

On Friday, data on French industrial output and the country’s trade balance will be an important development for euro traders.

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