Home Daily Commentaries US dollar trading flat after rumors of the US lifting China trade tariffs

US dollar trading flat after rumors of the US lifting China trade tariffs

Daily Currency Update

The Euro and Canadian dollar had wide upward swings against the US dollar yesterday after rumors that the US was lifting its China trade tariffs. US officials are debating ratcheting back tariffs on Chinese imports as a way to calm markets. The idea of lifting some or all tariffs was proposed by Treasury Secretary Steven Mnuchin in a series of strategy meetings, according to people close to the internal deliberations. However, Mnuchin faces resistance from US Trade Representative Robert Lighthizer, who is concerned that any concession could be seen as a sign of weakness.

The US dollar index traded flat around 96 in yesterday’s trading session despite the rumors. On the release side, the Philly Fed Manufacturing Index did far better than expected; it ticked up to 17 from 9.4, which is a much more significant jump than the predicted move to 9.7.

Key Movers

The USD/CAD is trading lower and touching an intra-day low of 1.3232 this morning (stronger Loonie) after the Canadian consumer price index (CPI) for December 2018 came in at -0.1 percent when the read was at -0.4%. The CPI rose 2.0 percent on a year-over-year basis in December, following a 1.7 percent increase in November. Lower energy prices were offset by higher prices for various services, including air transportation, telephone services, and travel tours. Excluding gasoline, the CPI rose 2.5 percent in December.

Furthermore, the Loonie has been helped by the increase of crude oil WTI prices, which were over 1 percent in the last few hours due to signs of easing trade tensions between the US and China. This continued to push stocks higher in Europe and Asia, putting the most significant indexes on track to end the week with gains.

The moves came after US stocks rose for a third straight session thanks to optimism that the US would ratchet back tariffs on Chinese imports. The Wall Street Journal reported Thursday that US Treasury Secretary Steven Mnuchin proposed the idea of lifting some or all tariffs on Chinese imports to advance trade talks.

The EUR/USD pair is trading flat at 1.1400 this morning after showing weakness during the week. It’s been a quiet end to the week for the Eurozone with little data to trouble investors’ diaries.

Greek Prime Minister Alexis Tsipras survived another vote of confidence in parliament. An argument with its northern neighbor Macedonia, which shares its name with a province in Greece, was at the root of the turmoil. However, Tsipras managed to survive the vote by the tightest of margins (151-149). Returning uncertainty over Greece would have provided another headwind for the Euro, which is being held back by a slowdown in its major economies on the back of the Trump trade offensive.

Prime Minister Theresa May and other members of the cabinet have been holding a series of meetings with MPs from across the political spectrum to try and break the Brexit deadlock. Senior MPs from the Democratic Unionist Party, Liberal Democrats, Plaid Cymru, and the Scottish National Party all met with May in the aftermath of her confidence vote victory on Wednesday evening. All day yesterday further talks were held with members of the Tory European Research Group, Senior members of the 1922 committee as well as several Labour MPs.

Labour Leader Jeremy Corbyn was noticeably absent from the meetings. He is refusing to meet the Prime Minister face-to-face until he gets a guarantee that a “no-deal” Brexit will be ruled out. The Prime Minister naturally cannot openly promote this to Corbyn as it will remove some of her negotiating leverage with the EU. May is set to present an amended proposal to the Commons on Monday with a vote due on January 29.

The GBP/USD pair made a play for the 1.3000 handle yesterday for the first time since early November, however, it has since fallen away towards 1.2926 in the European’s trading session.

The AUD/USD pair is trading flat at 0.7193 this morning. Despite the markets finishing the week risk-on, the Aussie is trading slightly under the 0.7200 handle against the Greenback with no firm positive developments over the US/China trade dispute. Next week’s employment figures from Australia provide the next big domestic event of note.

The Kiwi dollar is trading 0.10 percent higher at 0.6768 after slipping back in the European trading session. There is no top tier data from New Zealand next week so direction for the local buck and much of the rest of the world will be taken from the China Q4 GDP number due late Sunday night.

Expected Ranges

  • USD/CAD: 1.3181 - 1.3295 ▼
  • EUR/USD: 1.1369 - 1.1423 ▼
  • GBP/USD: 1.2920 - 1.2850 ▼
  • AUD/USD: 0.7150 - 0.7216 ▼
  • NZD/USD: 0.6720 - 0.6800 ▼