Today’s Key Market Drivers: 7th September 2018

“A Wall Street Journal Columnist claims Trump may go after Japan next with new tariffs.”

The Japanese Yen rose on Thursday and continues to rally on Friday as traders remain concerned about the USA’s trade dispute with China, which according to a Wall Street Journal columnist could soon spread to Japan. The US has recently imposed trade tariffs on virtually all its trading partners and Japan is a huge trading partner with the USA and to this point has remained out of any headlines and dispute with Trump. It goes to show that Trump does not have to publish his intentions for traders to sell off the US Dollar. All it took was a rumor and traders turned on the greenback and rallied the Yen across the board. Make no bones about it Trump wants a lower US Dollar and would be cheering its Thursday move back lower against the Yen.

The US unemployment report is due today and the market is expecting 191,000 jobs to have been created in the month of August. I doubt the unemployment number whatever it is today will change current sentiment on financial markets. The bigger story will be in the US Fed that is expected to raise the official cash rate this month and my hunch is the US Dollar post the Fed’s statement might see a period of a few weeks of declines. The reason I say this is because at some point the Fed is going to have to slow the pace at which it is raising rates and if they say in their September statement that the plan is to raise rates two more times before Xmas and then pause for a period the market is going to sell off the US Dollar as a result. The two rate hikes that are coming are 100% priced into the greenback already so what traders are looking for is further “down the track” forward guidance which in my view is likely to be “we will pause for a while and see how the economy performs with higher rates”.

The Aussie Dollar continues to make new lows as more retail banks raise their variable home loan rates. This is going to stress mortgage holders with the average $400,000 variable mortgage repayment rising by approximately $40 per month. Each of the big banks will reap over $1 Billion in extra income per year from the rise in their variable rates and don’t think for a minute these rate hikes will stop. Australian banks on average borrow 40% of the money they lend to Australian home buyers from international markets and they are justifying their rate hikes by saying interest rates on international borrowings are rising and therefore they must cover this cost. The RBA won’t adjust the official cash rate any time soon but if the US and European interest rates continue to rise, which they will then the local Aussie Retail Banks will again pass on this funding cost in 2019 even without an official rate hike from the RBA. The Aussie Dollar will continue to decline under the current fundamental backdrop.

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About the Author: Andrew Barnett

Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).

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