Hong Kong Bill, US Dollar, AUD/JPY, Trade War –TALKING POINTS
- The US House just proposed, passed a bill supporting Hong Kong protesters
- Legislation would require annual inspection of HK’s autonomy from Beijing
- China has threatened to retaliate if the bill passes amid Sino-US trade talks
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The Japanese Yen rose at the expense of the Australian and New Zealand Dollars after China threatened to impose retaliatory measures against the US after the House passed a bill to support the Hong Kong protesters. The legislation would entail an annual review of the city’s autonomy from Beijing after a proposed extradition bill earlier this year was met with a severe backlash and led to the current state of affairs in Hong Kong.
AUD/JPY chart created using TradingView
The bill would impose sanctions on any officials who are “responsible for undermining fundamental freedoms and autonomy in Hong Kong”. The proposal comes at a delicate time as the US and China are in the midst of attempting to conclude “Phase 1” of a trade deal. However, this maneuver by Congress may put a thorn in the President’s side as he attempts to ratify an agreement.
Looking ahead, traders will be closely watching whether the Senate will also pass the bill. However, even if it does not pass through the Senate, the sting from an attempt may be enough to extend the duration of trade talks as Beijing reconsiders its strategy with Washington. This new uncertainty may echo in Wall Street and send equities lower along with commodity-linked currencies like AUD and NZD.
Meanwhile, anti-risk assets like the Japanese Yen and US Dollar may catch a haven bid against the backdrop of what is an already economically-precarious environment. The IMF recently updated its global growth forecast for 2019, showing an expansion of three percent, the weakest pace in the post-recession era. Strained trade relations have been a primary factor behind slower growth and the current state of affairs suggest there is still more to come.
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— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter