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Dollar seen sensitive to Trump tariff moves

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Trump takes office at 1700 GMT

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Markets price 80% chance of BOJ rate hike this week

By Tom Westbrook

SINGAPORE, Jan 20 (Reuters) - The dollar was firm and

Asia's stock markets were cautiously positive on Monday as

investors waited for an expected flurry of policy announcements

in the first hours of Donald Trump's second presidency and eyed

a rate hike in Japan at the end of the week.

Trump takes the oath of office at noon Eastern Time (1700

GMT), and promised a "brand new day of American strength" at a

rally on Sunday.

He has stoked expectations he will issue a slew of executive

orders right away and, in a reminder of his unpredictability,

launched a digital token on Friday, which soared to trade above

$70 at one point for a total market value north of $15 billion.

Monday is a U.S. holiday, so the first responses to his

inauguration in traditional financial markets may be felt in

foreign exchange, where traders are focused on Trump's tariff

policies, and then in Asian trade on Tuesday.

U.S. equity futures were a fraction weaker in the

Asian morning on Monday while the dollar, which has rallied

since September on strong U.S. data and as Trump's ultimately

successful political campaign gained momentum, held steady.

Japan's Nikkei rose 1%.

Last week the S&P 500 notched the biggest weekly

percentage gain since early November and the Nasdaq its

largest since early December on some benign inflation data.

The dollar is up nearly 14% on the euro since

September and at $1.0273 is not far from last week's two-year

high. But so much is priced in that some analysts feel a more

gradual start to U.S. tariff hikes may draw out some sellers.

"A forceful start to Trump's new term could rattle nerves

and give the dollar more support," said Corpay currency

strategist Peter Dragicevich.

"By contrast, based on what already looks baked in, we think

a more measured approach may ease fears and see the dollar lose

ground, as it did after Trump took charge in 2017."

Trump has threatened tariffs of as much as 10% on global

imports and 60% on Chinese goods, plus a 25% import surcharge on

Canadian and Mexican products, duties that trade experts say

would upend trade flows, raise costs and draw retaliation.

The Canadian dollar touched a five-year low of

C$1.4486 per dollar on Monday. The Mexican peso hit a

2-1/2 year low of 20.94 per dollar on Friday.

Bitcoin dipped in the early part of the Asian day but

remained above $100,000. Benchmark 10-year Treasury yields

closed out Friday at 4.61%, up nearly 100 basis points in four

months.

CHINA FOCUS

China is in focus as the target of the harshest potential

trade levies. Investors lately cheered better-than-expected

Chinese growth data and a Friday phone call between Trump and

Chinese President Xi Jinping that left both upbeat.

"Basically everyone is waiting for these trade negotiations

to begin and see what kind of attitude Xi Jinping takes with

Trump," Ken Peng, head of Asia investment strategy at Citi

Wealth told reporters in Singapore at an outlook briefing.

"That relationship between the two gentlemen has become very

important as a leading indicator of policies."

Chinese equity markets rose last week and futures

pointed to modest gains for Hong Kong shares at the open.

The yuan is seen likely to slowly adjust to any shifts in

trade policy and was marginally firmer at 7.3355 per dollar

in offshore trade.

The Australian dollar, sensitive to trade flows and

China's economy, has scraped off five-year lows and, according

to Commonwealth Bank strategist Joe Capurso, could test

resistance at $0.6322 if Trump's policy changes fall short of

market expectations. It was last at $0.62.

Japan's yen rallied last week as remarks from Bank

of Japan policymakers were taken as hints that a rate cut is

likely on Friday.

It was last steady at 156.17 per dollar and rates markets

priced about an 80% chance of a 25 basis point rate hike.

In commodities gold hovered at $2,694 an ounce and

Brent crude futures ticked higher to $81.21 a barrel.

(Editing by Stephen Coates)