Home Daily Commentaries Elevated Tensions between China and the US Rattle Equities

Elevated Tensions between China and the US Rattle Equities

Daily Currency Update

The US Dollar rebounded through trade on Tuesday, advancing across the board as traders moved away from emerging market and high yielding currencies. Ongoing trade hostilities continued to dampen investors’ appetite for the Chinese Yuan which in turn fostered weakness in the Australian dollar as the commodity-driven unit slipped back below support at 0.74 to touch intraday day lows at 0.7381 while the US dollar index jumped half a percent snapping a four-day sell-off. Equities steadied, and risk aversion abated which helped drive the dollar’s recovery and left the door open for further upside.



The hawkish Federal Reserve outlook is driving investors into the world’s base currency as the divergence between the US and global monetary policy widens and adds further short-term support to the Greenback.







Attention today turned to US core durable goods orders ahead of Thursdays GDP print and Friday’s all-important measure of inflation the PCE index. US durable goods increased to -0.6 forecast was for -1.0. Strong reads and weakness across European, British and Japanese macroeconomic indicators will only strengthen demand for the USD while the European summit and ongoing trade tensions pose direct, immediate threats to risk appetite and will continue to drive short-term direction.

Key Movers

USD/CAD increased 0.1% to close around 1.3308. The loonie was not able to take advantage of the increase in WTI prices, which traded above 70 for the first time in the month, probably affected by the risk-off sentiment that was dominating the markets Yesterday and manifested itself in broad USD strength.





The trade drama also seems to be showing spillover effects as Canada said they were preparing steel tariffs on China and other countries to protect against potential market disruption in prices triggered by US steel tariffs.





Next levels to watch for the loonie are Yesterday USDCAD high at 1.3325, which should act as short-term resistance while 1.32 should be seen as future support.


EUR/USD fell back below 1.17 early on yesterday morning, primarily a result of broad strength in the dollar. There wasn’t any data out of Europe yesterday, and the calendar doesn’t look too dissimilar today with only money supply data due.





It could be another steady session for the single currency unless the tit for tat trade rhetoric starts to rear its ugly head again, which it undoubtedly will. Investors will also likely trade with an air of caution ahead of European inflation data due out tomorrow. More importantly, though, the EU summit is expected to start on Thursday, and we’re likely to get some market-moving news on subjects covering the EU's fiscal budget, Brexit, Italian fiscal risks, and migration.


It was a mostly quiet day in FX markets yesterday as traders in London and Europe seemingly took more interest in the World Cup and took as much of a chance as they could to get out in the sunshine. GBP/USD has traded a range between 1.32 and 1.3250, falling to the lower end of the range yesterday lunchtime as Jonathan Haskel, who’s set to replace Ian McCafferty. McCafferty a relative hawk on the committee – stated in written testimony to UK lawmakers that “the first risk involved in raising interest rates would be if this is done too quickly, disturbing investment and borrowing plans by more than would have been expected.” Although it seems Haskel is dovish in his thinking towards monetary policy, it obviously won’t influence expectations for a potential August rate rise; markets are currently pricing in a 71% chance of a hike.





BoE Governor Carney is due to speak today and will be speaking about the Financial Stability Report, released at the same time he’s due to talk. US Durable Goods Orders data is also due for release this afternoon, and so we could see some volatility in GBP/USD over the day.


The Australian dollar continued to edge lower through trade on Tuesday as investors sold back into the US 74 cent handle as the local currency continues to underperform against a stronger US dollar. Having opened the morning at 0.7372 and struggled to gain any upside momentum in overnight trade, intraday highs were limited to 0.7422 before a steady decline ensued.







Overnight we saw lows into 0.7380 as President Trumps administration looks to be on the verge of heightened measures to restrict Chinese investment into the American economy and potentially blocking United States manufactured high tech products into China.





A brief relief to the sell-off was seen following the release of CB consumer confidence index numbers, slumping to a number of 126.4 versus the previous reading of 128.8 causing the Australian dollar to recover to 0.7402.


The New Zealand dollar was slightly weaker this morning when valued against the US Dollar as the Kiwi struggles to hold its ground ahead of the Reserve Bank of New Zealand (RBNZ) meeting on Thursday. Overnight low between the NZD/USD pair was 0.6846.






Looking ahead today and all eyes will be on NZ Trade Balance Report which is anticipated to show the Trade Balance surplus narrow to NZ$ 100M from 263M in April. ANZ Business Confidence Survey for May will be released shortly after.








From a technical perspective, the NZD/USD pair is currently trading at 0.6852. We continue to expect support to hold on moves approaching 0.6830 while now any upward push will likely meet resistance around 0.6900.

Expected Ranges

  • USD/CAD: 1.3283 - 1.3327 ▲
  • EUR/USD: 1.1597 - 1.1672 ▼
  • GBP/USD: 1.3154 - 1.3234 ▼
  • AUD/USD: 0.7362 - 0.7407 ▼
  • NZD/USD: 0.6804 - 0.6868 ▼