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The US dollar reversed its uptrend following a more positive outlook on US-China trade negotiations

By OFX

The US dollar index is erasing some of its gains seen last week following both the talks in Beijing last week and the ongoing negotiations between the US and China in Washington this week with the visit of Vice Premier Liu He in the capital this morning. The Chinese government announced an extension to the suspension of retaliatory tariffs on US autos and the opioid fentanyl in a list of controlled substances; this move should help create a positive atmosphere for the talks.

Another factor that incited US dollar weakness in overnight trading was positive numbers from the Chinese economy. The global markets did their part and helped with a positive mood. For instance, the MSCI Asia Pacific Index climbed 1.0 percent, with Japan’s Topix index closing 1.5 percent. Additionally, improving investor sentiment spread to Europe, where the Stoxx 600 Index was 0.9 percent higher this morning.

From an economic data standpoint, the US dollar is still under pressure with a weaker US Consumer Confidence Index, a 2018 4Q GDP below expectations at 2.2 percent, and the Core Personal Consumption Expenditure Index easing to its weakest level in 11 months in January. The readings support the Fed’s view on interest rates last week when the central bank said it would keep rates on hold this year amid growing concerns over weakening global growth.

The Loonie was the best performer of the major currencies last week, and, obviously, crude oil had its best quarter in a decade. However, traders from the big trading houses, such as Glencore, Trafigura, and Vitol, all expressed doubts that crude oil would advance much further, despite both the OPEC making massive production cuts and US sanctions reducing output from Venezuela and Iran.

The main catalyst last Friday was the Canadian GDP release by Statistics Canada, which came in better than expected at 0.3 percent compared with the forecasted 0.1 percent. The GDP year to year came in at 1.6 percent versus the reading of 1.3 percent. Of course, China's PMI data boosted risk sentiment and incentivized more buyers of crude oil and the Loonie.

This morning, Canadian manufacturers signaled another slowdown during March, with overall business conditions improving at the weakest rate for two-and-a-half years. The Manufacturing PMI came in at 50.5 in March, when the expected number was 52.8, and the previous number was printed at 52.6. Technically speaking, the USD/CAD pair is trading at 1.3341, right at an important support level; if this level is broken, it might go to around 1.3237. An important resistance level is 1.3443.

Continued economic uncertainty has once again plagued the Eurozone, with slow economic data coming out of France, Germany, and Italy for another month. It is expected that this trend will continue into April and through into later in the year. We will have more of an idea about the extent of this slowdown on Wednesday when the service PMI’s for Spain, Italy, Germany, and France are released.

After more failed attempts last week to finally gain some clarity on the Brexit situation for Theresa May and parliament, the Sterling is once again subject to immense pressure by the market, with only 11 days left until Britain ‘crash out’ of the EU without a deal. It is now of upmost importance that the British government now try and band together or compromise to avoid total isolation from the 27 EU states – Britain’s largest trading partners. The British currency is on track for its most significant monthly loss in the last five.

The UK how has three main options with regards to Brexit: leave with no deal, host a general election or forge a softer divorce with the EU. Further votes will be held in parliament later today to try and establish the will of the house of commons. The uncertainty continues, and with this, the Sterling is paralyzed particularly with the prospect of a general election.

The Australian Dollar has continued its surge as concerns grow about a slowdown in the US. Just the one release overnight and this was private credit sector credit. The number showed credit increased 0.26 percent in February, while the annual growth edged lower to 4.2 percent.

The AUD/USD pair trades at 0.7122, representing a 0.39 percent increase at the time of this writing.

The Kiwi is still on the back foot following last week’s dovish message from the Reserve Bank of New Zealand, but a reprieve could be on the cards with the latest Chinese manufacturing data bouncing back as well as the business confidence survey from the Institute of Economic Research.