Dollar Drops as Trump’s ‘America First’ Speech Unnerves Traders

  • Administration vows in website to scrap trade agreements
  • ‘Caution is the theme for the week,’ NAB’s Catril says

Does the U.S. Dollar Have Further to Fall?

The dollar extended losses from Friday when Donald Trump’s inauguration speech offered scant details on his fiscal policies while emphasizing an “America first” approach to foreign policy, spurring concerns of rising trade protectionism.

The greenback slid as much as 1 percent versus the yen as an Asia-based FX trader said sellers in Tokyo initiated short positions and leveraged accounts followed macro funds to unwind trades that sought to profit from Trump’s pro-growth stance. The U.S. currency slid against all its Group-of-10 peers after the Trump administration vowed in its revamped website to withdraw from the Trans-Pacific Partnership and renegotiate the North American Free Trade Agreement.

“Caution is the theme for the week as the market will be very susceptible to Trump and his team’s policy announcements,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “Whether Trump achieves prosperity for America remains to be seen. From a global perspective, while his policies could result in America getting a bigger share of the pie, the pie is unlikely to become bigger if global trade declines.”

  • USD/JPY slides 0.9% to 113.63 after dropping 0.2% on Friday
  • USD/JPY likely to remain volatile after pair failed to decisively breach resistance at Jan. 12 high of 115.51 and subsequently fell back below 50-DMA
    • Support: 112.57, Jan. 18 low; 111.16, 38.2% Fibonacci retracement of June 24 to Dec. 15 rally
  • Protectionism tone in Trump’s inauguration speech is inevitably weighing on dollar, says Minori Uchida, head of global market research at Bank of Tokyo-Mitsubishi UFJ
    • Risk remains that aggressive fiscal outlay could boost Treasury yields; USD/JPY maintains high correlation with U.S. yields; no major catalyst to sell FX pair from here
  • More room for dollar correction, considering investors are still long USD and short Treasuries, says Wako Ogawa, director of foreign-exchange sales at Deutsche Securities in Tokyo
  • Treasury 10-year yield drops 3bps to 2.44% as investors seek safer assets.
  • BOJ Governor Haruhiko Kuroda said dollar could strengthen as U.S. economy likely to grow, Nikkei reported on its website citing a media briefing in Davos, Switzerland, on Friday
  • EUR/USD gains a third day, climbing 0.4% to 1.0743
  • AUD/USD rises 0.2% to 0.7571; Australia’s 10-year yield drops 3bps to 2.76%
  • NZD/USD advances 0.5% to 0.7203
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