Trump’s delay of protectionism tariffs a good sign for US dollar
KUCHING: The Trump administrations delay in implementing the proposed aluminium and steel tariffs on Canada, the EU and Mexico until June 1 will be a good sign for the US dollar.
To recap, US President Donald Trump had previously imposed worldwide tariffs of 25 per cent on US imports of steel and 10 per cent on aluminium back in March.
Many countries who exports heavily to the US were given exemptions until May 1.
China who is the US’s largest trading partner was not included in this list and fought back with its own 25 per cent tariff on US products that include agriculture products, cars, and chemicals.
Since then, Canada, the EU and Mexico have received extended exemptions until June 1, while agreements for permanent exemptions for Argentina, Australia and Brazil have already been reached.
South Korea has also been granted a permanent exemption on steel tariffs after a revision of a free trade pact between the two countries was conducted.
According to the research arm of AmInvestment Bank Bhd (AmBank Research), the imposition of the aforementioned protectionism tariffs would negatively impact the US economy and the US dollar.
As such, the delay which could potentially turn permanent depending on negotiations and certain exemptions would be a positive influence for the US dollar.
Besides this, the outcome of the two day Federal Open Market Committee (FOMC) meeting that is currently underway will be another significant influence on how the US dollar will perform.
“While we expect no change in the policy rate given recent gains in inflation and the prospect for strong economic growth through mid-2018, we widely expect the FOMC’s policy statement to be hawkish for the next rate hike in June by 25bps,” opined the research arm in an FX outlook report.
With that said, AmBank Research guides that they are expecting the US Dollar Index to continue its current uptrend which started before the FOMC meeting and will be heavily dependent on any suggestion that the Fed will raise rates at least three more times this year – marking in a total of four hikes in 2018.
“Thus, we believe the US dollar-ringgit will likely trade between our support levels of 3.9067 and 3.9118 while our resistance is pegged at 3.9286 and 3.9326,” reasoned the research arm.