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Category: Currency / Markets / Economic Trends

Donald Trump's power to move markets sends US dollar tumbling

Wednesday, 18 Jan 2017 09:59:39 | Peter Ryan

US President-elect Donald Trump pushed the greenback down with comments that it should be weaker. (Reuters: Lucas Jackson)

Donald Trump has once again demonstrated how a few words can move markets, after he warned the US dollar was "too strong" and "killing" American companies.

The US President-elect's remarks sparked a selloff in the US currency, adding to earlier weakness after British Prime Minister Theresa May confirmed a "hard" exit from the European Union.

Speaking to The Wall Street Journal, Mr Trump said he favoured a weaker US dollar, while once again attacking China for holding down its currency.

"Our companies can't compete with them [China] now because our currency is too strong, and it's killing us," Mr Trump said.

Analysts have labelled Mr Trump's dollar comments as random and haphazard, on top of earlier accusations that China is a currency manipulator.

External Link: Peter Ryan analyses Donald Trump's US dollar comments

Greg Anderson of BMO Capital Markets also criticised Mr Trump for not adhering to a convention that heads of state, including the US president, avoid targeting currency levels.

"We've worked long and hard to get to a protocol where heads of state, finance ministers and central banks don't target and specifically mention levels of their currency," he told Bloomberg.

"He [Mr Trump] just blew that."

The US dollar tumbled to its lowest level in a month after Mr Trump's comments, while the Dow Jones Industrial Average ended 0.3 per cent weaker.

One Australian dollar rose to be worth 75.5 US cents by 1:00pm (AEDT).

Pound rebounds on May's hard Brexit

The British pound had its biggest daily gain against the greenback since 2008 and was up 2.9 per cent against the US currency to $1.23 in the hour after British Prime Minister Theresa May promised a parliamentary vote on a "hard" Brexit from the European Union.

The pound collapsed in June last year after British voters opted to sever ties with the EU, but has slowly recovered as the fallout was seen as less serious in the short term.

Wall Street stocks were also hurt after Mr Trump repeated his threat to target pharmaceutical companies, which he has criticised over the pricing of drugs.

Investors were also rattled after Mr Trump said he was preparing to unveil a plan to overhaul President Obama's Affordable Care Act.

Once again, the lack of details on Mr Trump's spending plans prompted a selloff after the share market rally in the wake of his presidential election victory in November.

A softer US currency pushed the Australian dollar more than 1 per cent higher to 75.64 US cents, adding to Reserve Bank discomfort about a rising currency.

Follow Peter Ryan on Twitter @peter_f_ryan and on his Main Street blog.

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