The US dollar gained against the Japanese yen as economic data released yesterday indicated a rebound in wholesale inventories in July. The greenback’s rally was also fueled by a small increase in the US producer prices in August. The US-China trade talks, scheduled for October, are encouraging risk-on trades in the financial markets. That is resulting in the unwinding of long positions in the yen.
Interestingly, China withdrew import tariffs on over a dozen US goods yesterday. It is the first time the Chinese government has announced a relaxation since the beginning of the US-China trade dispute. From a low of 107.42, the USD/JPY pair has rallied to a high of 108.16 in the past 24 hours.
According to a report published by the Commerce Department, wholesale inventories increased by 0.2% in July, after declining by a revised 0.1% in the previous month. The reported figure matched economists’ expectations. The rebound in wholesale inventories was primarily due to an increase in non-durable goods inventories by 0.8% in July, after decreasing by 0.4% in June.
The Commerce Department also stated that wholesale sales increased by 0.3% in July after declining by 0.3% in June. Sales of non-durable goods surged 1.2% amidst an increase in sales of farm products, while sales of durable goods fell by 0.7% amidst a steep decline in sales of miscellaneous goods.
With an increase in both inventories and sales, the inventories/sales ratio for merchant wholesalers stood at 1.36, unchanged from the earlier month.
The US Labor Department has stated that the producer price index improved slightly by 0.1% in August, after increasing by 0.2% in the earlier month. Economists had anticipated prices to remain unchanged.
Despite a 2.5% drop in energy prices, there was a small increase in producer prices in August. Notably, energy prices jumped 2.3% last month. Gasoline prices plunged by 6.6%. Excluding food and energy prices, core producer price increased by 0.3% in August after declining by 0.1% in July. Economists had anticipated core prices to rise by 0.2%.
Furthermore, the yearly rate of growth in consumer prices accelerated to 2.3% in August, from 2.1% in July.
In the meanwhile, China has announced import tariff exceptions on 16 items, including fish meal, shrimp and cancer treatment medicines. Beijing has stated that Chinese importers can claim a refund of tariffs already charged on 12 of the goods. Four items, including whey, qualifies only for an exception but not for refunds. The exceptions will begin on September 17th and remain applicable for a year.
The announcement is noteworthy because it has arrived weeks before the scheduled face-to-face discussions between the US and Chinese officials in Washington. Some analysts have pointed out that the exemption did not include important products such as meat or soybeans.
However, Artur Baluszynski, head of research at Henderson Rowe, doesn’t believe that the tariff removal on the goods mentioned above holds significance. Baluszynski said “Chinese tariffs that really matter are the ones on US agricultural and manufacturing goods, produced mainly in states with strong support for [President] Donald Trump. We just don’t see China willing to negotiate on them before the race for US presidential elections really kicks off.”
Iris Pang, economist for Greater China at ING, opined that even though the withdrawal of tariffs on certain goods could be viewed as a “gesture of sincerity,” they are “probably more a means of supporting the economy.”
Despite contrasting views, the markets consider it as a positive step that will create a better negotiating environment in October. That has sparked the unwinding of long positions in the yen. Therefore, the positive economic data and the optimism over the upcoming US-China trade talks are expected to keep the USD/JPY pair bullish in the short-term.
Technically, the USD/JPY pair continues to receive solid support from the ascending trend line. Furthermore, the stochastic oscillator is in the bullish region. As a result, we can expect the currency pair to remain bullish in the short-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
