U.S. President Donald Trump informed a number of countries that signidicant tariff hikes are likely unless they improve their offers before August 01. Official White House Photo by Daniel Torok.
We're in the thick of tariff headlines this week, yet the Dollar is holding up.
Cast your mind back to April, when President Donald Trump unveiled his 'Liberation Day' tariffs, and you will recall that the Dollar plummeted.
This begs the question: is the Dollar losing its sensitivity to tariff headlines? The answer is important as it could mean the door is opening to a rebound.
Analysts at Royal Bank of Canada (RBC) are asking the same question and deduce that the Dollar's response function to tariffs is becoming less clear-cut. There are six reasons for this, says Richard Cochinos, FX Strategist at RBC's Capital Markets division:
1. U.S. Tariffs were a legitimate surprise in April. Now they are a refresh.
2. Dollar positioning is radically different than in April
3. U.S. rates are selling off on the announcement (in April they were rallying)
4. U.S. short-end rates are paring back from four cuts (April) to now two cuts expected end-2025, keeping US$ hedging costs elevated
5. U.S. economic data has been positively surprising recently
6. U.S. Stocks are once again outperforming
All this doesn't necessarily mean the downtrend in the Dollar is over, rather that we are entering a more nuanced phase.
"Long-run, NOTHING has changed on our view for foreign managers to hedge their US Dollar assets more – and this will bring structural weakness to the US$ throughout 2025 and 2026," says Cochinos.
The U.S. on Monday announced a series of tariffs, but pushed back an implementation deadline and said the door remains open to those willing to negotiate.
The developments mean the cliff-edge July 09 deadline for the implementation of the April 02 'reciprocal tariffs' will pass without incident; a relief to investors.
Indications that the U.S. is open to lowering the overall import tariff threshold is helping the Dollar regain composure.