USD: Trading Trump Speech; Impact On USD Direction - Morgan Stanley
Today the focus will be on the content of President-elect Trump’s press conference. (16.00 Ldn, 11.00 Ny)
From a currency perspective, markets will aim to get a clearer picture on trade, fiscal stimulus and the new administration’s relationship to the Fed. Recent press reports leave the impression that corporate tax reform in conjunction with a border tax adjustment may have a better chance of finding stronger support with the GOP and hence has a better chance of implementation.
Should Trump hint at something in this direction the USD is likely to move immediately higher. The USD would rally against commodity currencies as the border adjustment tax may not bode well for global trade.
Trump supporting measures allowing the US to export more energy combined with a border adjustment tax may provide a substantial boost to US energy exploration and production. Consequently, the US, which is currently the globe’s third largest oil producer, could add to global supply. International oil prices would fall.
China will listen. China’s Security Times suggested China may seek retaliation should the US erect a trade barrier. Concretely, the paper threatened to "cancel orders from Boeing, disrupt Apple's supply chain or even impose higher tariffs on imported agricultural products from the U.S." Hence, any talk about serious trade restriction plans will not bode well for global risk appetite. The USD rally would move from turning a low-yielding currency event towards a high-yielding currency event. Commodity FX should fall most should the designated US President focus on trade. A different market reaction should occur should fiscal policy expansion make the headlines. In this case,a rising USDJPY would be the best game in town.