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Low expectations for an agreement between Trump and Xi push dollar higher

By OFX

The US dollar index traded higher at around 0.3 percent in yesterday’s trading session following Fed Vice Chair Richard Clarida’s less dovish speech on November 16, where he said that gradual rate hikes are reasonable.

Regarding economic data, consumer confidence was in line at 135.7, but the labor differential edged up to 34.4 from 32 showing even stronger certainty in the labor market.

Regarding the G20 meeting, Trump is playing hardball. He says he will likely go ahead and increase tariffs by 25 percent on $200 billion of Chinese imports. The meeting on Saturday between Trump and China’s Xi Jinping is shaping up to be a decisive moment for the global economy, but he probably is acting as he did ahead of the NAFTA negotiations. The difference is that everybody knows that the concessions that the US wants from China are much more contentious and this is why expectations are low for a deal this week.

The Loonie continued along its losing path. The USD/CAD pair increased (weaker Loonie) by around 0.34 percent yesterday and increased again by 0.32 percent this morning, reaching a new 5-month high, printing at 1.3340.

There is no significant economic data until Friday when the gross domestic product numbers are published for the third quarter. However, the monthly Business Barometer from the Canadian Federation of Independent Business (CFIB) will be released this Thursday along with the current account balance number for the 3rd quarter, which is expected at -$ 11.75 billion.

The US dollar continued soaring yesterday after Richard Clarida, Fed Vice-Chair, was more hawkish in his speech, this was more supportive of higher rates in the US and a higher US dollar versus the Loonie.

In the US, the auto investigation report of the Ministry of Commerce is on the table of president Trump; both recommend a 25% tariff on car imports from all countries except Canada and Mexico.

The Euro was lower as German newspaper WirthschaftsWoche reported that Trump could announce auto tariffs as early as next week.

In the absence of local economic data, the EUR/USD traders once again turned their attention to Italy’s ongoing budget saga. Early reports yesterday suggested that Italy was set to cut its planned deficit target for next year. However, not long after, Italy’s deputy Prime Minister Matteo Salvivi indicated that Italy would not submit a revised budget to the EC.

The more negative risk sentiment also weighed on the EUR/USD, and the associated strengthening also impacted the Greenback. The EUR/USD pair is trading at 1.1278 this morning.

The GBP/USD tested 1.2726 yesterday, very close to the lows in October of 1.2696 (low for the year was 1.2662), as the math to a successful UK Parliament vote on Brexit was getting more daunting. Trump’s comments the previous night, when he indicated that May’s Brexit deal wasn’t a good one, got a negative reaction from Cable traders.

The Bank of England, Financial Stability Report, is due to be released this afternoon, along with the Bank Stress Test Results, followed by a speech from BoE Governor Carney. The central bank will be publishing assessments for various Brexit scenarios, measured against a comparison of remaining in the EU. It should be interesting! Around the same time, US Fed Chair Powell is speaking about monetary policy, a keenly awaited speech.

The Cable is trading higher this morning to 1.2790, which is a 0.37 percent increase.

The AUD/USD has traded within a steady range over the last 24 hours. It fell towards the end of the day yesterday to the 0.7200 handle, as did most other currencies versus the US dollar. Falling commodity prices haven’t helped either, with iron ore prices falling significantly over the last few days.

Regarding economic data, the Australian construction work done printed weaker numbers at -2.8 percent lower than expected at 1 percent last night; however, it didn’t affect the currency as traders remain cautious ahead of Fed Chair Powell’s speech later today.

The AUD/USD is trading at 0.7241 as of the time of this writing.

Like the AUD/USD pair, NZD/USD has traded within a steady range overnight. There wasn’t much of a reaction to the release of the RBNZ Financial Stability Report last night, at which point the central bank announced it was easing the loan-to-value ratio restrictions slightly. The bank also said that they thought risks to the NZ financial system has “abated a little over the past six months.” RBNZ Governor Orr later told reporters that “both mortgage credit growth and house price inflation have eased to more sustainable rates, reducing the riskiness of banks’ new housing lending”. Local traders now look to local ANZ Business Confidence data, due for release later tonight. The NZD/USD is trading at 0.6797 as of the time of this writing.