Home Daily Commentaries The US dollar weakens as optimism rises in the US-China trade deal

The US dollar weakens as optimism rises in the US-China trade deal

Daily Currency Update

The US dollar index was trading lower again on Friday, after going higher on Thursday as investors sought safety in the US dollar following the Brexit drama and rumors of a US-China trade deal. President Trump said that news about the trade deal is expected in the next few weeks, boosting optimism that the two largest economies will close an agreement.

It looks like the delay of a very likely US-China deal is already priced in the US dollar. The cheering from Trump on the negotiations brought back risk appetite to investors who sold the US dollar. However, on Saturday morning, South China Morning reported that there is a proposed summit that will be pushed back to June to end the ongoing trade conflict between US president Trump and China’s Xi Jinping.

The media, in general, were also full of optimism about an extension being conceded by the European Union on the Brexit deadline. There is still much work to do to move parliament from its current fragmented form into a consensus that approves a workable deal.

Key Movers

For the Loonie, there is not much to get excited about today. The Loonie gained 0.8 percent last week against the US dollar, after a 4 percent increase in international crude oil prices. However, it might be a busy week for the Loonie. So far, it looks positive for oil crude and for the Loonie because of the OPEC meeting in Baku, Azerbaijan over the weekend. So now, it seems like the group may cut slightly beyond the 1.2 million barrels a day it agreed to in December and keep that in place through June. The US is also influencing a higher crude oil price because of output shortfalls in Venezuela and Iran, which were triggered by US sanctions.

Technically speaking though, as long the USD/CAD pair doesn’t break the support of the 1,3300 handle, it might be constructive for the bulls (Loonie might get weaker), but if the USD/CAD goes under 1.3300 (stronger Loonie), it might easily test 1.3250. For today, some key resistance levels are 1.3365 and 1.3380.

The FOMC rate decision in the US takes place on Wednesday, so we should expect some volatility after 2:00 pm on Wednesday.

The EUR/USD pair is trading at 1.1350 at the time of this writing, showing a 0.21 percent increase. There isn’t much by way of European data this week, and the focus for traders will likely remain on Brexit related headlines. The only piece of important data will be released tomorrow when the German ZEW survey expectations for March are released; also the Euro Zone ZEW survey (economic sentiment) for March will be delivered.

The GBP/USD has traded a narrow range over the last three trading sessions; it is trading at 1.3240 at the time of this writing, representing a 0.34 percent decrease. Moreover, as ever, direction continues to be and will be hugely influenced by Brexit related rhetoric and headlines. Investors now await the result of a potential third meaningful vote tomorrow although Chancellor Hammond has indicated that this would only happen if the Government has a ‘high degree of confidence’ of it passing. At this stage, it doesn’t sound like parliament will be voting on anything too different from last week, but it could still win more votes as May has warned MPs that a further defeat could lead to a long delay to Britain’s withdrawal from the EU.

Investors will also have half an eye on UK economic data this week, including average earnings data and employment tomorrow, inflation on Wednesday and the Bank of England’s Monetary Policy Statement on Thursday. It all makes for another potentially volatile week ahead for the British Pound.

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The Australian dollar edged higher through trade on Friday and overnight, moving toward the upper end of the weekly range. With little of note on the domestic calendar, the AUD was buoyed by broader USD weakness as the world’s base currency suffered its worst weekly decline this year.

The AUD/USD pair is trading at the 0.7100 handle at the time of this writing, a 0.28 percent increase. Attentions this week turn to Wednesday’s employment data - with the RBA recently doubling down on the importance of the labor market as a driver of future growth, a downturn in employment will amplify calls for the Reserve Bank of Australia to cut rates before the year is out.

The New Zealand dollar advanced higher through trade on Friday, boosted by an increase in Business NZ Manufacturing released last Thursday. The NZD/USD pair is trading at 0.6865 this morning, representing a 0.28 percent increase.

Later today, market participants await the release of Westpac Consumer Sentiment for the first quarter and the 4th quarter GDP on Wednesday.

Expected Ranges

  • USD/CAD: 1.3308 - 1.3365 ▲
  • EUR/USD: 1.1315 - 1.1395 ▲
  • GBP/USD: 1.3205 - 1.3295 ▲
  • AUD/USD: 0.7070 - 0.7125 ▲
  • NZD/USD: 0.6840 - 0.6890 ▲