US Dollar May Extend Recovery as Trade War Sours Market Mood
TALKING POINTS – US DOLLAR, TRADE WAR, AUSTRALIAN DOLLAR, EURO, DRAGHI
- US Dollar up on haven flows as China talks away from trade talks
- Australian and NZ Dollars suffer outsized losses amid risk aversion
- Euro unlikely to find lasting direction cues as ECB’s Draghi speaks
The US Dollar rose at the start of the trading week, building on Friday’s spirited recovery. Risk aversion seemed to be driving force behind the advance after China walked away from trade talks with the US, stocking trade war escalation fears.
Officials in Beijing balked after US President Donald Trump and company opted to press ahead with $200 billion in tariffs on Chinese imports last week. The sentiment-linked Australian, Canadian and New Zealand Dollars suffered outsized losses.
Pre-positioning ahead of the upcoming FOMC meeting may have played a part as well. Short-term interbank lending rates jumped to a decade high in Hong Kong trade, suggesting financial markets might be starting to look past tactical considerations that led USD lower last week to reconsider the macro picture.
A speech from ECB President Mario Draghi headlines an otherwise quiet European calendar. He will appear before the Economic and Monetary Affairs committee of the EU Parliament. Topics include an assessment of risks facing regional banks and communication of nonstandard policy measures.
With ECB strategy through year-end effectively on autopilot, Mr Draghi seems unlikely to offer anything materially trend-changing for the Euro. Still, a stray soundbite that captures the markets’ imagination may appear, driving kneejerk volatility (if not necessarily inspiring follow-through).
Otherwise, sentiment trends look likely to remain at the forefront. Futures tracking the FTSE 100 and S&P 500 equities benchmarks are pointing lower before London and New York come online, hinting that continued risk aversion may translate into extension of Asia Pacific session moves.
See our study on the history of trade wars to learn how it might influence financial markets!
ASIA PACIFIC TRADING SESSION
EUROPEAN TRADING SESSION
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.