UBS On-Air: Paul Donovan Daily Audio 'Old price data still interests'
At a Glance
The desk interprets the upcoming US import price inflation data as a critical indicator of underlying pricing pressures affected by tariffs and exporter discounting strategies. Per the full note , even though the data pertains to September, economists will still scrutinize it for signs of how tariffs could shift costs down the supply chain. Any observable disinflation or deviation from global pricing trends in import prices could suggest that exporters are absorbing tariff impacts, influencing currency dynamics as this may affect trade balances and overall economic sentiment.
Key Takeaways
- 01US import price data is critical for understanding inflation dynamics.
- 02Exporters may respond to tariffs by discounting prices, affecting cost structures.
- 03Disinflation in import price inflation could signal tariff impacts.
- 04Insights might influence broader FX trading strategies.
Full Analysis
What the desk is arguing
The desk posits that the US import price inflation data, while historical, remains pivotal in understanding current market dynamics. Specifically, it will shed light on whether exporters are responding to tariffs by adjusting their prices, an important factor since the legal liability for tariffs rests with importers. Insights into these pricing strategies are essential for managers and traders alike as they will frame future pricing and inflation expectations in the US.
Economic indicators show that if import prices for specific products are trending lower compared to previous norms, this could signal an increased willingness among exporters to discount prices. Such trends might imply that import price inflation is stabilizing, potentially leading to a heavier cost burden from tariffs throughout the supply chain. This aspect is crucial to watch, especially in sectors like consumer electronics where prices typically trend lower over time.
Where it sits in our coverage
Our consensus target for the USD/CAD is set at 1.075, with a range between 1.04 and 1.12. Various firms see different trajectories: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This outlook suggests that the desk's view aligns closely with jpmorgan, placing it near the upper end of the projected range, indicative of a cautious but bullish stance on the dollar amidst potential inflationary pressures.
How other firms see it
jpmorgan and bofa represent contrasting views on the USD/CAD outlook where the former supports a stronger dollar implication. Firms like jpmorgan foresee upward momentum as tariff implications unfold, while bofa remains skeptical of such strength given historical patterns.
Import price trends are essential points to monitor, especially in context to forthcoming trade discussions that could shape further tariff policies. Observing movements in related currency pairs, like AUD/USD, may also provide insight into commodity exports and broader market sentiment.
Market Implications
Traders should monitor the upcoming import price data closely, particularly looking for signs of disinflation that could solidify support for the USD. Any shifts that indicate enhanced pricing flexibility among exporters may suggest broader economic implications worth factoring into trading strategies.
From the original
US September import price inflation is old news, but will still be poured over by economists. Exporters do not pay tariffs in any economy—the legal liability for the tariff is that of the importer. However, exporters may discount their prices to offset tariffs, which would show u
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