Home Daily Commentaries Optimism around US-China trade talks move global markets higher

Optimism around US-China trade talks move global markets higher

Daily Currency Update

Fundamental data for the US was a bit of mixed bag yesterday. We kicked off with the quarterly GDP number. Economic growth slowed in the final quarter of the year with GDP posting 2.2 percent, missing the forecast and down from the previous quarter. This does leave full-year growth at 2.9 percent putting 2018 as the best year since 2015 and well above the 2.2 percent increase seen in 2017. However, given the recent slowdown in global economies, pressure now mounts for first quarter GDP. Slow growth is expected, and some are even looking for the first signs of a recession. Our estimate is for first quarter GDP to be below 2 percent.

The Dollar found some support after the downward revision of GDP through the unemployment claim numbers. The data highlighted claims fell to their lowest level in two months, posting 211K where 222k was expected. Three members of the Federal Reserve board all spoke yesterday. They all sounded cautiously optimistic about the outlook. St. Louis Fed President James Bullard said “it's premature to consider a rate cut.” He added that he expects growth to pick up in the second quarter.

China trade talk was optimistic. President Donald Trump’s tweeted that "doing well in trade talks with China." In the past, these comments have sparked a flurry, but markets seem to become immune to these now. US Treasury Secretary Steve Mnuchin and US Trade Representative Robert Lighthizer had a ‘productive’ dinner with the Chinese delegation ahead of a full day of talks today between the two sides. Meanwhile, Larry Kudlow, Trump's economic advisor, tempered expectations, saying the US is willing to extend the process for weeks or months to get the right deal for the US.

Key Movers

The Loonie is up this morning with the help of GDP numbers and oil prices. Canadian GDP m/m printed at 0.3 percent versus the 0.1 percent forecast. WTI is currently trading at a five-month high – currently up 2 percent for the day hitting a high of 60.73. Despite’s yesterday’s tweet from Trump, oil seems to be on a continuous uptrend on the back of OPEC supply cuts and US sanctions against Iran and Venezuela. WTI is up roughly 33 percent YTD which is its biggest quarterly rise since 2009.


In Europe yesterday, financial markets digested the indications from the Europen Central Bank that a tiered deposit system is under consideration. Long term inflation expectations dipped to its lowest level since September 2016, and this is keeping the pressure on the Euro for now.


This morning we had the release of German retail sales. Retail sales rose by 0.9 percent on the month in February vs. January’s +3.3 percent - the sharpest rise since October 2016.


Further Brexit developments yesterday were the main drivers for Sterling’s losses. We do head for another vote in parliament today but its not the ‘meaningful vote’ that most were expecting. This vote is watered down or effectively cut in half. The MV vote is made of 2 parts, the withdrawal agreement and future relations with the EU. Today’s vote will only be on the withdrawal part. The PM had to bring something to the table by 11 pm this evening to get an extension to the 22nd May, if this vote fails the next Brexit date falls to the 12th April with the possibility of applying for a further extension. We also kick off the next round of indicative votes on Monday. All this uncertainty is causing tremendous selling pressure, and Sterling has been dropping against all majors for the last 24 hours.


The Australian Dollar erased all of its gains to levels just above the 71c handle vs. the US Dollar yesterday which saw the pair touch a low of 0.7064 in the North American session. Intraday AUD/USD managed to gain some traction and hit 0.7106 on the back of job vacancy numbers, according to the ABS, job vacancies rose 1.4 percent in the three months to February, and were up 9.9 percent year-over-year, marking its eleventh straight rise in job vacancies and is a record run of gains.

Unfortunately, the benefits were short-lived, and sellers emerged wearily of global uncertainties in the wake of the EU moving in crisis mode as it plans for a no-deal Brexit. The EU’s chief negotiator, Michel Barnier, told diplomats during Thursday’s meeting that a no deal was now “the most plausible outcome.”

Looking ahead, locally sees the release of Private Sector Credit and investors now await more details on the progress in the US-China trade negotiations for some significant impetus as well as of course…Brexit.

Adopting a technical viewpoint, we see initial AUD/USD support at 0.7050 before 0.7000 (psychological level) on the downside. On the topside, first lines of resistance are seen at the 50-day moving average level of 0.7100 followed by 0.7160.


The Kiwi, still feeling the effects of the dovish Royal Bank of New Zealand outlook, moved lower against the USD yesterday. The RBNZ signaled the first rate cut could be in August. RBNZ Governor Adrian Orr spoke at an event hosted by the central bank today, Orr said that the central bank is focused on inflation employment objectives amid low, stable inflation and broad financial stability. GBP/NZD is in free-fall since London opening, this drop is being driven by Brexit concerns and currently down at 1.9185.

Expected Ranges

  • USD/CAD: 1.3333 - 1.3443 ▼
  • EUR/USD: 1.1210 - 1.1247 ▲
  • GBP/USD: 1.3004 - 1.3136 ▲
  • AUD/USD: 0.7073 - 0.7103 ▲
  • NZD/USD: 0.6774 - 0.6812 ▲