US-China Trade Breakthrough: 'Risk on' Move into Year-End Possible, Dollar seen as a Loser, Australian and New Zealand Dollars, Rand Could be Winners

Trump Argentina

Above: U.S. President Trump, Argentinian President Mauricio Macri at the just-ended G20 summit. Image reproduced under CC licensing.

The big news for currencies coming out of the G20 summit held over the weekend is US and China have come to an agreement aimed at ending the so-called trade war between the world's two largest economies.

The two sides agreed to halt new tariffs, as the two countries aim to reach a trade agreement within 90 days, the White House has said which we should ensure global markets trade in optimistic fashion over the coming week.

We see the Australian and New Zealand Dollars being winners while the U.S. Dollar might be a loser.

U.S. President Donald Trump and Chinese President Xi Jinping held talks in Argentina in an attempt to thaw the trade war between their countries that has dominated market attention through 2018.

Trump committed not to boost tariffs on $200bn of Chinese goods to 25% on January 01.

Xi agreed to buy an unspecified but "very substantial" amount of agricultural, energy, industrial and other products, the White House said.

The White House also said China "is open to approving the previously unapproved Qualcomm Inc NXP deal should it again be presented".

The White House said that if a trade agreement on issues including intellectual property, cyber theft and agriculture have not been reached with China within 90 days, then both parties agree that the 10% tariffs will be raised to 25%.

The trade war been a major driver of global market sentiment over recent months with a slowdown in global trade and a stronger Dollar - the result of the liquidation in global stocks - being partly driven by the trade war theme.

We have seen global markets rise over recent days on hopes of a thaw in tensions and we would expect this theme to extend over coming days.

The prospect of a 'santa rally' in stocks therefore looks good.

The Australian Dollar and New Zealand Dollar are two currencies that would be expected to benefit. China is the key export market for these two countries and their currencies are seen as liquid proxies for exposure to China for investors.

Emerging market currencies, like the South African Rand, are also expected to benefit.

The U.S. Dollar, Japanese Yen and Swiss Franc could be amongst the losers as they tend to benefit when markets are nervous owing to their 'safe haven' qualities.

The Euro could also benefit from any liquidation in Dollar longs.

Sterling is seen to be a neutral play amongst this global story and we would expect the ongoing tensions surrounding Brexit to remain the central driver.

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