Dollar Falls on Dismal Data and No New China Tariffs from Trump

Summary: The Dollar fell against its rivals weighed by dismal US economic data while risk appetite steadied after a speech by President Trump on China saw no mention of new tariffs. The Euro led the FX rally against the Greenback, climbing to 1.1145 overnight and near late March highs before settling at 1.1107 (1.1070 Friday morning). The Euro extended its advance last week boosted by expectations that the ECB will expand its asset purchase program. Sterling rose to 1.2351 from 1.2315 on broad-based US Dollar weakness to finish its best week in May. The Australian Dollar pared its climb to 0.6665 (0.6635 Friday) after trading to a new marginal peak at 0.6683 in late New York. Yesterday, China’s NBS Manufacturing PMI slumped to 50.6 from 50.8, missing forecasts at 51.1. USD/JPY was the only FX pair to buck the trend with a modest gain of 0.10% to 107.80 (107.65). Japan’s Retail Sales and Preliminary Industrial Production were both worse than forecast. Against Canada’s Loonie, the US Dollar was little changed at 1.3765 (1.3770) after dropping to 1.3714, the lowest since March 12. The Greenback finished lower against the Offshore Chinese Yuan (USD/CNH) to 7.1320 (7.1700 Friday). Asian and Emerging Market currencies ended higher against the Greenback buoyed by month-end demand. Oil prices closed the month higher. Both Brent Crude and West Texas Intermediate (WTI) were 4.39% up. US stocks settled. The DOW was up 0.02% to 25,518 (25,515) while the S&P 500 climbed 0.5% to 3,058 (3,045).

US Personal Spending Chart - FX Factory - 01 June 2020
US Personal Spending Chart – FX Factory – 01 June 2020

Data released Friday saw  Japan’s Unemployment Rate improve climb to 2.6% from 2.5% but beat forecasts at 2.7%. Japanese Preliminary Industrial Production fell to -9.1%, worse than the -5.5% expectations. Retail Sales slumped to -13.7% from -4.7%, underwhelming forecasts at -11.2%. French Consumer Spending slumped to -20.2%, missing median expectations at -14.5%. German Import Prices fell to -1.8%, against forecasts of -1.5%. Canada’s GDP in May fell to -7.2%, bettering forecasts of -9.0%. US Core PCE Prices dropped to -0.4% missing forecasts at -0.3%. US Personal Spending slipped to -13.6% from -7.5%, missing forecasts at -12.6%. Chicago PMI dropped to 32.3 from 35.4, missing expectations at 40.1. The US Trade Deficit climbed to -USD 69.7 billion from – USD 64.2 billion.

On the Lookout: The week ahead into a new month sees a busy data calendar which kicks off today and culminates on Friday with the US Payrolls report. Today sees global factory activity data releases. While risk appetite steadied on the weekend, the South China Morning Post stated in a report that US-China tensions were “set to worsen” as moderates lose out to hardliners with the latter stressing the “combat spirit.”
Over the weekend, protests in the US became increasingly violent and troops had to be deployed in many American cities to assist local Police.
Today kicks off with Australia’s AIG and Commonwealth Bank Manufacturing PMI’s followed by Japan’s Jibun Bank Manufacturing PMI. China’s Caixin Manufacturing PMI report (May) round up Asia’s data releases. Europe sees Spanish, French, Italian, German and Eurozone Manufacturing PMI’s released. The UK reports on its Manufacturing PMI. Finally, the US releases its Final Manufacturing PMI and ISM Manufacturing PMI followed by US May Construction Spending.

Trading Perspective: The Dollar retreated against all its rivals bar the Yen after the release of dismal US data. Risk assets have gained as investors remain convinced that central banks will continue to provide liquidity which has resulted in a lower Greenback. The Euro has led the charge because FX is convinced that the ECB will expand its asset purchase program regardless of questions from the German Constitutional Court. On Friday, the Euro peaked at 1.1145 before slipping to finish at 1.1108, its highest close since March 30. The week ahead sees global factory and services activity (today and tomorrow), the ECB rate policy meeting and announcement (Thursday) and US Payrolls (Friday). The RBA has its rate policy meeting and statement tomorrow.
US-Chinese tensions look likely to rise this week from the latest developments. Risk will turn fragile, which should be Dollar supportive. We look at the various currencies.

USD/CAD – Finishes Little-Changed Despite Weaker USD and Higher Oil

The USD/CAD pair finished little-changed at 1.3765 from 1.3770 on Friday despite higher Oil prices and broad-based US Dollar weakness. Canada’s May GDP bettered forecasts at -9.0% with a -7.2% print although this was much worse than April’s 0.0%. USD/CAD hit an overnight and March 12 low at 1.37143 before climbing in late New York. Much of the Canadian Dollar’s support came from comments by outgoing Bank of Canada head, Stephen Poloz. Newly appointed BOC Governor Tiff Macklem begins his reign on June 3 (Wednesday). Macklem, who was Poloz’s assistant has tended toward negative rates to combat the fall in Canada’s economy due to the coronavirus pandemic.

USDCAD Chart - FXStreet - 01 June 2020
USDCAD Chart – FXStreet – 01 June 2020

The rising US-China tensions are also negative for Canadian trade and will weigh on the Loonie.

USD/CAD has immediate resistance at 1.3800 and 1.3840. Immediate support can be found at 1.3745 and 1.3715. Look to buy dips in a likely range today of 1.3740-1.3840.

EUR/USD – Extends Advance on Firm Foundations, 1.12 Cap to Hold

Following the clean break above the 1.1000 level late last week, the Euro’s advance hit an over-night high at 1.1145 just short of the late March peak at 1.1165. FX has become convinced that the ECB will expand asset purchases and the PEPP (Pandemic Emergency Purchase Program). Some analysts expect the ECB to expand the PEPP by EUR 500 billion. Whether this will see the bullish Euro run continue remains to be seen. Much of the Euro’s advance has been against the generally weaker US Dollar.

EURUSD FXStreet Chart - 01 June 2020
EURUSD FXStreet Chart – 01 June 2020

The events and data releases ahead will set the tone for the shared currency, and indeed the Greenback. Today sees the release of Euro area Factory activity (Manufacturing PMI’s) despite the Whit Monday holiday’s in France and Germany. The ECB has its policy meeting on Thursday and the US releases Payrolls Friday.

EUR/USD has immediate resistance at 1.1150 followed by 1.1200. Immediate support can be found at 1.1080 followed by 1.1030, and then 1.1000. While I agree that the Euro is on more solid footing, the speculative market is still long of Euros. A disappointing set of European data this week, and a less committed ECB could see the Euro back towards 1.0800. We may be forming a 1.08-1.12 range.
Today, look to trade a likely range of 1.1060-1.1140. Prefer to sell rallies

AUD/USD – Consolidates Gains, Needs Break Above 0.6685, Otherwise Range

The Aussie Battler extended its advance to finish 0.3% higher at 0.6667 in New York after trading to a fresh marginal high at 0.66831. AUD/USD was sold down to 0.66104 overnight lows in late European/early New York trade as risk appetite soured ahead of Trump’s news conference on China. When no new tariffs were announced, traders bought the Aussie Dollar back near its highs at 0.6667 where it finished.

AUDUSD FXStreet Chart - 01 June 2020
AUDUSD FXStreet Chart – 01 June 2020

This morning in Asia, US stock futures slumped with the S&P 500 down to 3,021 from the NY close at 3,060. Tensions between China and the US were expected to simmer after the South China Morning Post’s report that the Chinese hardliners had won over the moderate regarding their response to the Americans. US Secretary of State Mike Pompeo criticised the ruling Chinese Communist Party saying that China viewed itself as intent upon the destruction of western ideas, democracies, and values. The RBA meets on interest rates tomorrow and while no change is expected, traders will look into the RBA’s policy rate statement for future guidance.

AUD/USD dipped to 0.6655 from 0.6667 on these latest developments. Immediate resistance lies at 0.6685 followed by 0.6700. Immediate support can be found at 0.6620, where solid buying emerged. The next support level can be found at 0.6580. Look for a likely trading range today of 0.6585-0.6680. Prefer to sell rallies.