The Dollar to Yen exchange rates weakened to a five-month low against this week as risk appetite came back to markets following the recent indices downtrend. Regardless of stocks ticking up investors seem to have also utilised the Yen as a safe haven in order to hedge, preferring the Yen haven over the US Dollar in anticipation of the Wednesdays run of US economic data. Dollar to Yen exchange rates have also been squeezed by developments in Kuroda’s potential extended tenure.
Tax cuts take effect on the US Dollar
Many believed Donald Trump’s recent tax revamp would have had the effect of flooding the stock market with cash from middle class America however in recent weeks the equities market has spiralled lower with many believing that the growing US deficit which will be exasperated by the republicans plans to reinvest in US infrastructure which is now being viewed as a negative.
Estimates now forecast that the US fiscal deficit will rise to $833 Billion in 2018, although it is probably worth mentioning that the 2017 fiscal deficit was estimated to reach $665 Billion but ended up at $670 billion.
Trump plans to pass an infrastructure plan through congress which will see an investment of $200 Billion made by the government and $1.3 trillion dollars contributed by the private sector. His infrastructure plans include the renovation of bridges, roads and water services.
Minimal progress with NAFTA talks
Whilst NAFTA may not be a priority for trump the lack of progress may be starting to be reflected in Dollar exchange rates. Both Canada and the US appear unable to get along with Trump’s negative accusations of Canada:
“Canada has treated us very, very unfairly when it comes to lumber and timber. In addition, Canada’s policies that limit dairy imports have not been easy on Wisconsin farmers. You try and ship product into Canada, if you’re a farmer.”
Despite the lack of cohesion between the US and Canada, it’s understood that talk between US and Mexico are slowly taking shape.
Despite potential glimmers of hope, NAFTA is important for all involved. The North American free trade agreement created $1.1 trillion in trade between the 3 parties in 2016. Therefore, despite arguably NAFTA having a modest impact on US GDP it would surely be of detriment to the economy and an abandoning of the agreement viewed dimly by investors.
Investors diversify into other assets
Investors are now ploughing back into other assets as a risk on attitude has seemingly returned; over the last few days, the Dow Jones has moved from 23,373 to yesterdays close of 24,640. Elsewhere the Nasdaq composite index has climbed from 6655.85 to 7013.58, whilst the S&P has also risen from 2542.92 to 2662.94; potentially signalling that investors are dipping their toes in the water again.
During this time the dollar has been tumbling against a basket of currencies as speculators divert away from the Dollar, the link between equities and appreciation and depreciation in the US dollar is a strong one as confidence in the stock markets fell, a rise in the dollar occurred however in recent days the increase in stock market appetite has created a slump in the USD.
Whilst the US Dollar has struggled against a majority of the majors the Japanese yen has been offered support following reports that Japan’s prime minister plans endorsing Haruhiko Kuroda for the second term as chief of the bank of Japan.
The endorsement from Abe, therefore, signalled that he supports the continuing of the monetary policy, which had weakened the Japanese Yen, boosted the Japanese export market and provided a healthy boost for the corporate balance sheets and the stock market.
The probability of Kuroda serving a second term leans to both continuity and a safe pair of hands to the Japanese economy and a stronger yen, especially in times of volatility.
Dollar to Yen exchange rate this week
This week has seen the Dollar depreciate against an array of currencies as investors slowly scurried back to stock markets following the recent losses. This trading rationale had seen the dollar trade higher as speculators rode the storm, the recent return to indices has the USD/JPY trade dramatically lower.
Dollar-Yen exchange rates have now reached a 5-month low as sentiment has moved away from the US Dollar. This week’s Dollar-Yen trading high was 109.78 on Tuesday and the week has the seen a gradual depreciation of the dollar despite no discouraging US economic data.
A further sell-off in the USD/JPY occurred following Japans quarterly GDP figures, despite the economic data missing the target and showing contraction on the previous figures the USD/JPY has continued to slide. Annualised, Japan’s GDP has grown 0.5% which was slower than expected with the strong export market unable to offset weak domestic demand.
The pair is currently trading lower still in anticipation of this week’s notable US economic data, the Dollar-Yen exchange rate currently sits at 107.10.
This week’s key US economic data
As covered there is a number of key US economic data releases which will surely have an impact on the Dollar this week. These include monthly inflation data (CPI), Core inflation date (core CPI), and core retail sales.
The latest US inflation figures are also accompanied by crude oil inventories data which is linked to inflation prices subject to oil supply.
Thursday continues to also be economic data-heavy for the US with the Philadelphia Fed manufacturing index, Empire state manufacturing and more importantly the monthly producer price index (PPI).