- The US-China trade call went well.
- Powell’s speech, later in the week, is crucial for the dollar.
- German IFO watched after a weak PMI.
The US-China latest talks were hailed as a success by both parties, sending the risk-on assets and currencies on an upswing while the dollar slipped in trading against major currencies.
US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin had a call with Chinese Vice Premier Liu He, earlier scheduled for Aug. 15. The US said that both sides saw progress while China’s commerce ministry termed the talk as constructive.
The success of the talks reassured the market’s perception of continued trade relations even when the diplomatic ties are frayed. Analysts said that the signs are encouraging that despite the rhetoric, both sides are very keen to have an economic relationship.
The markets were also boosted by the Financial Times report that the US administration considers fast-tracking approval for the coronavirus vaccine being developed by AstraZeneca and Oxford University.
The Australian dollar was up 0.2 Percent around 0.7171 while the Chinese Yuan firmed up to 6.9007, trading against the dollar. Euro went above 1.18 dollars by mid-morning in Asia, and the pound was up 0.3 Percent to 1.3102 dollars. The yen was at 105.95 a dollar. The kiwi struggled near 0.6528 dollars weighed by expectations of negative interest rates in the future.
Markets were not expecting a breakdown of the trade and also are waiting for the speech from Federal Reserve Chairman Jerome Powell later in the week. Powell could send the dollar in either direction with his words, so traders are not willing to bet big ahead.
Against a basket of currencies, the dollar slipped by 0.1 Percent to 93.180 and is trading flat for the month, after falling 10 Percent from late March.
The dollar held up today in the Asian session despite an uptick in the equities.
The dollar’s short-term fortunes depend on Europe’s perceived edge over the United State during coronavirus times and the market’s perception of Fed action.
Traders are waiting for Powell’s address to a virtual Jackson Hole symposium on Thursday with dovish expectations and await his comments on the speculation that the central bank would be more flexible on inflation.
Contrary to this, that is if there is no dovishness in his speech then the dollar would rally along with the Treasury yields. The bulls might get support from the over-extended shorts getting covered.
Germany’s IFO Business Climate index, due at 0800 GMT, and US consumer confidence figures at 1400 GMT will offer some comparison about the two major economies.
Last week’s weaker-than-expected data suggested downside risk.
If German data turns negative on the macro outlook in Europe, then euro would decline against the dollar with support coming in at 1.17 dollars and resistance at 1.1850/80 dollars, breaking of which will signal a clear trend in either direction.