The Waiting Game: The Currency Market Watches US-Sino Trade Talks

. 3 min read

Overview:

  • Investors are switching to safe haven currencies with new tariffs looming
  • GBP/USD trades around 1.30 handle ahead of UK GDP data
  • NYMEX WTI crude oil steadied around $61.50 a barrel, applying pressure on commodity-linked currencies

Highlight:

USD/CAD continues to travel through a narrow trading range with 1.35 acting as a cap. The pair remains cautious after trade talks between Beijing and Washington seem to have gone off track. The US Administration is threatening with new tariffs with the Chinese counterpart promising quick retaliation. The ongoing spat will likely have broader repercussions with the world economy growing at a fragile pace.  We expect the loonie to be under pressure with sliding oil prices and new trade developments.

US DOLLAR

Reports of escalating trade tensions remain at the centre stage, vaulting traditional safe-haven assets to new highs. The Japanese Yen strengthened to a fresh three-month high against the greenback. The price of gold firmed nearly a dollar to trade at $1,285 an ounce. There is hope that the ongoing US-China trade negotiations move back on track, with new US tariffs looming this Friday. Away from the drama, economic data showed unemployment claims decrease 2k from last week to 228k, while the Producer Price Index recorded a moderate rise of 0.2% for the month of April. The currency market is expected to remain inside recent tight ranges. Investors will prefer to err on the side of caution ahead of US inflation number and more updates on US-China trade negotiations.

BRITISH POUND

The Sterling is fetching 1.30 USD, down 0.25% this morning, driven mainly by an escalation in trade tension between China and the US. Investors are also avoiding heavy bets ahead of the UK GDP data due tomorrow. Market consensus sees the economy expanding 0.5% over the last quarter. Meanwhile, the tedious Brexit process sees no progress, with more cross-party talks on the cards. Meanwhile, the process drags the economy into a never-ending uncertainty.

EURO

EUR/USD has not moved much over the past few sessions, consolidating around the 1.12 handle. Lack of local macro data and uncertainty over global trade relations are driving the market to err on the side of caution. The pair is expected to remain inside recent trading ranges ahead of the release of US inflation numbers.

CANADIAN DOLLAR

Movement in the USD-CAD pair remains capped at 1.35 level. The Canadian trade deficit narrowed to $3.2 billion in March, with higher exports of energy exports. The pair showed little reaction to the data and is driven mainly by global market sentiment. The Bank of Canada will, however, welcome the positive turn in the oil sector, which has been under stress and acting as a drag on the economy.

AUSTRALIAN DOLLAR

AUD USD dipped just below the 0.70 mark to 0.6904 under pressure from US-China trade talks. The threat of tariffs is making currency investors reach for the antacids.

FEATURED CURRENCY

The Yen touched a three-month high against the US dollar as the market continues to channel funds into traditional safe haven currencies. Escalating trade tensions and geopolitical risks are the main contributors to risk aversion trades. Meanwhile, consumer confidence in Japan came higher than market consensus but still remains soft. Along with the recent PMI, this is a second reading pointing to improvements in sentiment.

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