Summary: The Dollar ended mixed against its rivals as US-China tensions rose amid a EUR 750 billion EU Commission recovery fund proposal. A war of words ensued between Chinese and US officials. China’s Global Times said that the US has “hidden key information and failed to handle the coronavirus pandemic properly, leading to the global health crisis.” President Trump said he would announce a US response to China’s planned security legislation on Hong Kong before the end of this week. Against the Chinese Offshore Yuan, the US Dollar (USD/CNH) rose to finish at 7.1800 (7.1450 yesterday), an 8-month high. Total deaths in the US due to the coronavirus pandemic climbed over the 100,000 mark, hitting 101,833. The Euro cracked the 1.1000 level, finishing at 1.1007 (1.0985) up 0.3% against the Greenback. Meantime the risk leading Australian Dollar sagged, pulling back to 0.6620 from 0.6660 yesterday. Sterling slipped to 1.2290 (1.2338) driven by the UK’s repeated refusal to extend the transition period of Brexit. The Dollar was neutral against the Canadian Loonie at 1.3770 (1.3780) despite lower Oil prices. Brent Crude Oil slumped 5.8% to USD34.85 (USD36.65) after an International Energy Agency (IEA) report saw a record drop in global energy investment.
Wall Street stocks rallied on the European Commission’s proposed stimulus plans shrugging aside rising China-US tensions. Banking sector equities outperformed. The Dow was up 2.1% to 25,598 (25,067) in late New York trade. The S&P 500 added 1.4% to finish at 3,040 from 2,997 yesterday. Global bond yields were little changed.
Data released yesterday saw the US Richmond Manufacturing Index at -27.0, beating median expectations at -40.0 and the previous month’s -53.0.
On the Lookout: Hopes continued to rise for an expected economic recovery as Covid-19 restrictions are eased. The European Commission’s proposal for a Euro 750 billion stimulus plan to bolter economies ravaged by the Covid-19 pandemic buoyed risk appetite. Tensions between China and the US remain elevated as leaders from both countries continue with their war of words. Meantime the death toll from the pandemic in the US and the new epicentre Brazil continue to climb. This is the reality. The elevated risk appetite which saw a Dollar retreat yesterday is fading.
Some primary economic reports are scheduled for release today which kick off with New Zealand’s ANZ Business Confidence Index followed by Australia’s Q1 Private Capital Expenditure. Euro area reports see Germany’s Preliminary CPI (May) and Spain’s Annual Flash CPI (May). Canada releases its Current Account. US reports its Preliminary Q1 GDP, Headline and Core Durable Goods Orders, Weekly Unemployment Claims and Pending Home Sales.
Trading Perspective: While the Euro rallied against the US Dollar, other currencies eased including risk and EMS. The Dollar Index (USD/DXY) a favoured gauge for the Greenback’s value against a basket of 6 foreign currencies was little changed at 98.97 (98.98).
Rising tensions between the US and China pushed the USD/CNH pair to 8-month highs while the risk leader Aussie Dollar retreated from its cycle high reached yesterday. The Greenback also advanced against most of the Asian and Emerging Market currencies. The bell weather for the Dollar has switched to the Chinese Yuan and Asian currencies. The others, majors included will follow. Which should see the US Dollar grind back higher.
EUR/USD – Can the Shared Currency Maintain the Break Above 1.10?
The Euro went against the trend of a slightly firmer US Dollar against its other rivals boosted by the European Commission’s proposed EUR 750 billion recovery fund. EUR/USD closed the New York session at 1.1007, up 0.3% from 1.0985 yesterday. The shared currency traded to a high at 1.10308, highs not seen since April 2.
There are two barriers to further Euro gains. First is the speculative market’s overbought condition and second is the stronger US Dollar against the British Pound, Chinese Yuan, and Asian currencies. The risk leader Aussie Dollar retreated against the Greenback. Brexit negotiations which Boris Johnson is trying to revive will need to progress for a more sustained Euro rally.
EUR/USD has immediate resistance at 1.1030 followed by 1.1060 and 1.1100 (strong). Immediate support can be found at 1.0990 and 1.0960. The Euro will consolidate within a higher range expected to be between 1.0940-1.1040.
AUD/USD – Weak Chinese Yuan Prevents Advance, 0.6650 Caps
The Australian Dollar retreated under the weight of a weak Chinese Yuan finishing down 0.40% to 0.6620 at the New York close. In early Asia, the AUD/USD pair was trading around 0.6627. The weaker Chinese Yuan and other Asian currencies will prevent any sustained Aussie Dollar advances. Today sees the release of Australia’s Q1 Private Capital Expenditure report which is expected to dip to -2.6% from -2.8%. If the data comes out lower, say at -2.8 to -3.0% it would add downside pressure to the Battler.
AUD/USD has immediate resistance at 0.6650 followed by 0.6680. We can find immediate support at 0.6590 followed by 0.6560. Watch the USD/CNH and USD/Asians today as they could decide the fate of the risk-sensitive Australian Dollar. US GDP and Durable Goods Orders are also due tonight.
Look for the Aussie Battler to consolidate within a likely 0.6550-0.6650 range today. Prefer to sell rallies if the Asians continue to weaken.
USD/CAD – Oil Sell-Off Lifts US Dollar Off Lows, Further Recovery Seen
The US Dollar rallied off its overnight and 2.1/2-month lows against the Canadian Loonie at 1.37280 to finish at 1.3765 in New York from 1.3780 yesterday. The sell-off in Oil prices weakened the Canadian Dollar against its US counterpart. Earlier in the week, outgoing Bank of Canada Governor Stephen Poloz said that “if further monetary stimulus is required to meet our inflation targets, the bank has tools available to deliver that stimulus.” Which saw the USD/CAD pair plunge from 1.40 to last night’s low.
USD/CAD has immediate support at 1.3730 followed by 1.3700. Immediate resistance can be found at 1.3790 and 1.3820. The next resistance level lies at 1.3850. The Canadian Dollar will weaken if the sell-off in Oil prices and Asian currencies (led by the Chinese Yuan) continue. Look for consolidation in the USD/CAD pair with a likely range today of 1.3740-1.3840. Prefer to buy dips today.
