From the FXWW Chatroom: The Trump election campaign spoke out against promoting global trade deals, trying to keep domestic US markets protected. Calling countries with competitive exchange rates and aggressive trade practices officially “currency manipulators”, leading to an automatic introduction of trade sanctions, has been suggested during the election campaign. Whether these policies will be finally implemented needs to be seen. However, any sign of reversing globalisation would work against countries with a dominant manufacturing base, overcapacity and the commodity producers. Selling AUD and KRW goes beyond tactical considerations. It reflects potential changes in the country’s terms of trade. This happens in Australia via falling commodity prices coming on the back of manufacturing overcapacity-running countries reducing investment and hence commodity demand. In the case of Korea it may come via trade restrictions decreasing the country’s relative competitive position. Consequently, the return of investment may decrease further from here, leading to a faster pace of balance sheet retrenchment. Both currencies are sensitive to changes to real rates and the risk outlook.
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