With less than 48 hours to go before the beginning of the G20 Summit in Osaka Japan, the focus is shifting back to U.S.-China trade relations. This morning during the early European trading session, USD/JPY shot higher on reports that a trade deal between the U.S. and China is 90% done. Unfortunately the interview with U.S. Treasury Secretary Mnuchin was misquoted and instead of saying that it is 90% done, he actually said they "were about 90% of the way" there. In this case, tenses make all the difference because a deal that is close to being done is very different from an agreement that was almost done and abandoned near the end.
Regardless, the dollar gave back only a small portion of its gains as FX traders hold out hope for deal. At minimum, investors are hope that the trade talks will resume after this weekend's meeting between the 2 leaders. We think they will but President Trump is extremely difficult to predict. Today, he said he's optimistic about trade talks but he's "very happy with where we are now" and is still considering more tariffs. Based on these comments alone, it doesn't seem like the President is walking into the talks with a different attitude than before. So while USD/JPY has shot higher ahead of the G20 Summit, unless there is meaningful progress before the markets close on Friday, we expect to see profit taking.
Meanwhile the improvement in risk appetite drove all other major currencies higher today. The New Zealand dollar led the gains, rising to fresh 2-month highs. This may be surprising to many because the Reserve Bank said lower interest rates may be needed given downside risks. They felt that the global economic outlook has weakened and there is risk of ongoing subdued domestic demand. Softer house prices could also dampen spending while uncertainty weighs on business investment. NZD/USD fell immediately after the rate decision but recovered in minutes. The RBNZ's dovish tone was widely expected and no new revelations were made. Interest rate futures are pricing in a 66% chance of a cut in August and 79% chance in September which is a not much different than last week. Instead the immediate focus is on G20 and as a high beta currency, improvements in U.S. - China trade relations can be extremely positive for NZD.
USD/CAD dropped to its lowest level in 6 months on the back of oil. Crude prices rose more than 3% following a major refinery outage in the East Coast. Apparently the damage is so severe that it could permanently shut down the oldest and largest refinery in the region. The Canadian economy is also performing well compared to its peers. There was only one piece of data released so far this week and while it's a minor one, the increase in wholesale sales is indicative of broader demand. GDP numbers are scheduled for release on Friday and given low expectations, there's reasonable chance for an upside surprise. The next level of support in USD/CAD is 1.30.
Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
EUR/USD drops below 1.0800 after German Retail Sales data
EUR/USD has come under fresh selling pressure and trades below 1.0800 after the data from Germany showed that Retail Sales declined by 1.9% MoM in February. Resurgent US Dollar demand is adding to the downside in the pair. US data are next in focus.
GBP/USD stays weak near 1.2600 amid market caution
GBP/USD remains defensive near 1.2600 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull.
Gold price holds strength ahead of US core PCE inflation
Gold price holds onto gains near $2,200 in Thursday’s European session. The precious metal exhibits firm footing ahead of the United States core PCE Price Index data for February, which will be published on Friday.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.