Watch oil price movement for clues on US$ direction

ONE of the emerging concerns arising from US President Donald Trump's trade and foreign policy is an increasing awareness of the impact of a dollarised trade economy. This means that Mr Trump can "force" third-party countries into compliance with US trade objectives by threatening to deny them access to the SWIFT foreign currency settlement system, or access to counter-party services offered by US banks.

This provides a strong incentive to establish alternative trade and currency settlement systems based, China hopes, on the Renminbi (RMB). Speaking at the Belt and Road conference in Beijing last week, Chinese President Xi Jinping made it clear this was a priority objective. We can expect to see an increase in commodity and other trading activity with contracts denominated in RMB as China continues to source oil from Iran.

The announcement by Mr Trump on the unilateral imposition of third-party sanctions on Iran and countries dealing with it was widely cited as the cause of a massive jump in oil prices. Just how true is this, and does it mean we can revise the previous price target?