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Vaccine news doesn’t protect US dollar

USD - United States Dollar

Nothing stimulates equity markets like vaccine news these days. And as we’ve seen since March, when equities rise, the dollar falls.

One of the vaccine contenders released data on its COVID-19 clinical trial and the S&P 500 is up nearly 12 points. This same risk sentiment allowed traders to move away from the US dollar and purchase other currencies.

EURUSD, after dropping to 1.175 late last week has climbed past 1.18 again today. GBPUSD, as of this morning, approached 1.32. AUDUSD has neared a seven-day high. It broke through 0.72. USDCAD dropped through 1.32 this morning and traded at 1.314 at the time of writing.

Vaccine news wasn’t the only hot commodity this morning. Core durable good orders, a leading indicator of production, came in ahead of expectations. But the 2.4% increase was lower than the previous month. And for the fourth time in five weeks, crude oil inventories increased.

Tomorrow Federal Reserve Chairman Jerome Powell speaks at the Jackson Hole Symposium on monetary policy. Investors will be keenly attuned to any signal from the FOMC that they will shift their inflation target away from a fixed point to an average based system. Such a move would allow for a higher tolerance to inflation before the Fed steps in to raise interest rates, effectively maintaining softer monetary policy for longer. This could further weaken the US dollar.

Key Movers

The Australian dollar remained range bound through much of Tuesday maintaining Monday’s sluggish start to the week and struggling to break back above 0.72 US cents. Moves across currency markets were largely muted and the Australian dollar bounced between 0.7150 and 0.7195 despite broad based US dollar softness. With little domestic data on hand to drive direction the Australian dollar drifted aimlessly through the local session before creeping higher overnight.

The Japanese Yen was the day’s worst performer, falling as global interest rates rose. The correlation between global rates and the currencies' performance seems intact and the USDJPY pushed through 106.30.

The Great British pound outperformed against all major counterparts pushing back through 1.3150 following an uptick in risk demand. Easing US/China trade tensions overshadowed weaker domestic retail sales data. While Sterling has enjoyed a remarkable resurgence through the last 6 weeks, its rally comes on the heels of a broader US dollar decline. While there is scope for ongoing dollar softness, Brexit concerns and the economic effects of the Pandemic will likely weigh on direction through the months ahead.

Expected Ranges

EUR/USD: 1.177 - 1.183 ▼

GBP/USD: 1.312 - 1.320 ▼

AUD/USD: 0.717 - 0.722 ▼

USD/CAD: 1.314 - 1.320 ▼