FX Rate News

The Australian dollar rallied against the greenback on Monday after a surprise election victory by the country’s conservative government, while the yen eased as risk appetite improved slightly.

The dollar index against a basket of currencies was a shade higher at 98.024, having booked its biggest weekly rise since early March last week.

The Aussie was last up 0.7% at $0.6916, having bounced from a four-month trough of $0.6865. It was briefly quoted as high as $0.6990 but dealers said that was a miss-hit and the actual transacted peak was $0.6938.

The currency’s jump came after Australian Prime Minister Scott Morrison’s center-right Liberal National Coalition scored a shock win in federal elections, beating the center-left Labor party, who had been tipped to win.

The election result helped provide stability to the country’s economic outlook, analysts said, as some had feared a win for the less business-friendly center-left Labor party could have undermined growth.

“There’s a sense of security with the continuation of the current government,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“The risk that the economy will experience a big drop has decreased considerably as a result.”

The Aussie also found support on a statement from China’s central bank on Sunday that it would maintain the stability of its yuan within a reasonable and balanced range.

The yuan has taken a hit recently in the wake of intensifying trade tensions between the United States and China.

Another factor in play was a surge in crude prices after the Organization of the Petroleum Exporting Countries indicated it will likely maintain production cuts, helping spur demand for currencies sensitive to oil prices.

The Canadian dollar advanced about a quarter of a percent to C$1.3430.

Against the yen, the dollar added 0.1% to 110.215, building on last week’s gains, when it booked its first weekly advance against the Japanese currency in five weeks.

The yen dipped on a slight improvement in risk appetite, with data showing the Japanese economy unexpectedly accelerated in the last quarter, defying expectations for a mild contraction.

The world’s third-biggest economy grew at an annualized rate of 2.1%, government data showed, accelerating slightly from the previous quarter thanks to net export gains.

The euro was steady at $1.1155, having dropped last week on comments from Italian Deputy Prime Minister Matteo Salvini that European Union rules harm his country.

Investors’ focus this week is on the May 23-26 elections for the new European Parliament.

Market participants will also watch out European readings for a private purchasing managers’ index that measures activity in services and manufacturing due on Thursday, after data last week showed the German economy returned to growth in the first quarter of 2019.

“If we see good PMIs, the euro will form a bottom. It could be the start of the recovery,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

The Japanese yen strengthened on Friday, attracting safe-haven buying due to lingering concerns among investors about trade tensions and impending European Parliament elections.

Currency moves in response to recent U.S.-Chinese trade hostilities have been fairly muted but traders have bid up the yen, considered a safe haven in times of stress because of Japan’s status as the world’s largest creditor.

“Despite yesterday’s rebound, we are still reluctant to trust a long-lasting reversal in risk appetite. With the U.S. (verbally) attacking China, and China willing to respond, we cannot assume that the worst is behind us,” said

Charalambos Pissouros, a senior market analyst at JFD Brokers.

The euro is under pressure from concerns about next week’s European parliamentary elections and comments from Italian Deputy Prime Minister Matteo Salvini.

Salvini said on Thursday that he would “tear apart” EU budget rules that were “strangling” Italy if his party did well in the elections.

“Italy remains one of the factors keeping euro downside risks high,” said Credit Agricole FX strategist Manuel Olivieri.

The euro was steady at $1.1178 after falling to $1.1166 overnight, its lowest since May 6. It has fallen 0.5% this week.

The dollar, meanwhile, has also benefited as a safe-haven currency even as the United States and China remain locked in a trade dispute.

It was bolstered on Thursday by data that showed U.S. homebuilding increased more than expected in April.

On Friday, it held near a two-week high against its peers, supported by the strong data and a bounce in Treasury yields.

The dollar index against a basket of six major currencies stood little changed at 97.802 after reaching 97.882 on Thursday, its highest since May 3.

The Chinese yuan weakened as far as 6.9450 against the dollar, its weakest level since Nov. 30.

The Australian dollar stretched overnight losses and fell to a new 4-1/2-month trough of $0.6883. The Aussie had suffered big losses the previous day after soft domestic employment data raised expectations of an interest rate cut by the Reserve Bank of Australia.

Australia holds a parliamentary election on Saturday but analysts said U.S.-China tensions were likely to remain the biggest influence on its currency.

The Australian dollar hit a fresh five-month low on Thursday as investors came close to fully pricing in a rate cut for July on bruising domestic economic data and a swelling trade conflict between the United States and China.

In Europe, the Swedish crown led losses while optimism on the euro proved short-lived with trade tensions and upcoming European elections weighing on sentiment.

But it was the Aussie dollar that was firmly in focus after Australian unemployment rose to its highest in eight months, cementing views its central bank may be forced to lower rates soon to stimulate the economy.

The currency was down a quarter of a percent at $0.6933 in early European trade, having hit a new five-month low of $0.6893 in the Asian session.

“The Aussie has remained under pressure with labour and unemployment data being what it is, while RBA rate cut expectations have increased,” said Manuel Olivieri, an FX strategist at Credit Agricole.

“It will likely remain defensive with elections coming up this weekend, not to mention it is quite sensitive to risk sentiment,” he added.

Money markets are wagering a rate cut might come very soon, with futures now showing a 50-50 chance for a quarter-point easing in June. A move to 1.25% was put at a 90% probability for July and was more than fully priced by August.

Australians have a choice between tax cuts and greater public spending when they vote in a general election on Saturday, the starkest distinction in economic policy in years from the two main political parties.

Australia’s 10-year bond yield hit an all-time low of 1.639 percent.

The currency has also been hit in recent weeks by Sino-U.S. trade tensions – given Australia’s strong trade links with China – and news on that front was alarming on Thursday after Chinese telecoms giant Huawei was hit with severe sanctions by the world’s largest economy.

These trade tensions also hit European currencies, with the Swedish crown weakening 0.2 percent at 9.6145 per dollar, not far from an all-time low of 9.661 per dollar hit a week ago.

The euro meanwhile was flat to a touch higher on the day at $1.12045, following some gains the previous session after U.S. officials said President Donald Trump was expected to delay implementing tariffs on imported cars and parts by up to six months.

The loss of momentum in the single currency is likely down to worries around an upcoming European parliamentary election, in which anti-establishment parties may make significant gains.

“We think the euro will be much more about the domestic politics now and the risk that we get more populist comments, such as from the Italian Deputy PM,” said Olivieri of Credit Agricole.

Italian Deputy Prime Minister Matteo Salvini said on Wednesday European Union budget regulations are “starving the continent” and must be changed, a day after he roiled financial markets by saying Italy should be ready to break the rules.

China’s offshore yuan and the Australian dollar found their footing again on Tuesday as broader sentiment stabilized after U.S. President Donald Trumpsaid he expected Sino-U.S. trade negotiations to be successful.

Trump said earlier he would meet with Chinese President Xi Jinping at a G20 summit next month. China had announced on Monday it would impose higher tariffs on $60 billion of U.S. goods following Washington’s decision last week to hike its own levies on $200 billion in Chinese imports.

Though analysts said it would take time for volatility to settle completely, risk-sensitive currencies including the offshore yuan and the Aussie held up well following comments from Trump late on Monday that trade talks with China are “going to be very successful.”

Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said the timing of Beijing’s announcement that it would impose higher tariffs on U.S. goods had exacerbated moves in the foreign exchange market during the previous session.

“It seems the timing was probably a surprise so the moves in the currency market were rather large,” Yamamoto said, adding that market participants could also be over-reacting to Trump’s latest trade-related comments.

“Trump said he believes that (the trade talks) will be successful, but success for him isn’t necessarily a success for China,” Yamamoto said.

China’s offshore yuan last gained about a quarter of a percent at 6.8948 per dollar.

The yuan had suffered its steepest one-day decline since late July last year during the previous session, before hitting its lowest versus the greenback since late December early on Tuesday.

The Australian dollar managed to firm a tenth of a percent to $0.6952 after brushing its lowest since early January earlier in the session.

The Aussie is often seen as a proxy for Chinese growth because of Australia’s export-reliant economy and China being the country’s main destination for its commodities.

“Volatility in the market has risen quite a lot. I think it will take time before it will settle,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Ishizuki said he thought it was unlikely that sentiment would deteriorate significantly from here ahead of Trump’s planned meeting with Xi next month.

“Quite a lot of negative news has come out. But with things as they are, those have already been priced in by the market,” he added.

The dollar index against a basket of six rivals held steady at 97.320, having ended the previous session little changed.

Investor focus on Tuesday was also on eurozone industrial production for March and Germany’s ZEW economic sentiment index for May, both due around 0900 GMT.

The euro rose 0.15% to $1.1238. Sterling was a shade higher at $1.2968.

Against the safe-haven yen, the dollar gained a quarter of a percent to 109.60, bouncing in line with the recovery in sentiment after falling as low as 109.15 yen in early trade.

The greenback had touched a more than three-month low of 109.02 yen brushed during the previous session when it shed nearly 0.6%.

Bitcoin, the world’s best-known cryptocurrency, on Monday hit $8,000 on the Bitstamp exchange for the first time since July last year, before retreating slightly. It was last up 1.9% on the day at $7,965.98

China’s yuan was set for its worst daily fall in nine months on Monday as trade negotiations between the U.S. and China ended after President Donald Trumpraised tariffs on Chinese goods.

Currency moves in response to the latest trade hostilities have been muted, but on Monday the yuan fell 0.8% to 6.9040, its weakest since Dec. 27.

Some analysts say it may breach 7 per dollar in coming months, a level last seen during the global financial crisis.

China would probably use its vast currency reserves to stop any plunge through 7 to the dollar, which could trigger speculation and heavy capital outflows.

Investors bid up the yen, which is considered a safe haven in times of stress given Japan’s status as the world’s largest creditor and its huge hoard of assets abroad.

The yen was 0.25% higher at 109.700 yen, near last week’s three-month high of 109.470.

“We’re waiting to see if China retaliates to the latest round of U.S. tariffs … and continue to favor the yen on a short-term basis and expect the market to remain focused on the yuan,” said Chris Turner, an ING currency strategist.

The world’s two biggest economies appeared deadlocked on Sunday. Washington demands changes to Chinese law; Beijing says it won’t swallow any “bitter fruit” that harms its interests.

President Trump and his Chinese counterpart Xi Jinping are likely to meet during a G-20 summit in Japan at the end of June and discuss trade.

The Australian dollar shed 0.3% to $0.6976. A drop below $0.6960 would take the currency, already burdened by a dovish shift by the Reserve Bank of Australia, to its lowest since early January.

The Aussie is sensitive to shifts in risk sentiment and also serves as a proxy for trades related to China, Australia’s largest trading partner.

The dollar index against a basket of six major currencies was flat at 97.318.

The euro edged higher on Friday and is poised for a second consecutive week of gains on growing fears that any escalation in the trade conflict between the United States and China would force U.S. policymakers to cut interest rates.

U.S. President Donald Trump’s tariff increase to 25% from 10% on $200 billion of Chinese goods kicked in on Friday, and Beijing said it would strike back. The two sides are pursuing last-ditch talks to try to salvage a trade deal.

While U.S. and Chinese officials return to the negotiating table later on Friday, investors have quietly ratcheted up bets of a U.S. interest rate cut with markets now roughly expecting one rate hike by the end of 2019.

Athanasios Vamvakidis, an FX strategist at Bank of America Merrill Lynch, said if China retaliated then the threat of a global trade war will affect the outlook of the U.S. economy and increase the chances of a Fed rate cut.

“In this case, the Fed has more room to ease than most other central banks, suggesting eventually a weaker dollar against both the euro and the yen,” he said.

The single currency edged 0.1% higher to $1.1220 on Friday and was on track for a second consecutive week of gains.

Broadly, risk appetite was muted though some of the higher-yielding currencies such as the Australian dollar which was heavily sold earlier this week when Trump unexpectedly ratcheted up trade tensions, gained.

The dollar index measuring the U.S. currency against a basket of six major currencies, of which the euro is a main component, was slightly firmer at 97.43.

Still, trade tensions have had broadly little impact on foreign exchange markets with typical perceived safe-haven assets such as the Japanese yen only gaining 1.2% this week while broader currency market volatility gauges were subdued despite a minor bounce this week.

Elsewhere, the pound held around the $1.30 level after sustaining some losses this week before first quarter British GDP data where expectations are for a 0.5% expansion compared with 0.3% growth in the previous quarter.

The Japanese yen surged to a 3-month high against the dollar on Thursday as investors piled into the safe-haven currency fearing that the U.S.-China trade conflict could escalate.

Two days of trade talks begin in Washington on Thursday and traders are waiting to see whether Chinese and U.S. negotiators can salvage a deal to prevent more U.S. tariff increases.

Currency moves this week in response to a new bout of trade war angst have been fairly muted but Thursday’s jump in the yen – which tends to attract demand in times of political strife and market turmoil – suggested investor nerves are fraying.

The main casualties of the heightened tensions have been the Australian dollar, a proxy for Chinese economic prospects, the U.S. dollar and the offshore Chinese yuan.

The yuan on Thursday fell half a percent to hit a four-month low of 6.838 and was headed for its worst four-day decline in a year.

“It looks very much like a trade deal is almost off the table and that the U.S. will impose new tariffs on Chinese goods tomorrow. Fears in the market are mostly reflected in yuan exchange rates,” said Ulrich Leuchtmann, an FX strategist at Commerzbank.

Unlike previous episodes when the dollar benefited from an increase in trade worries, U.S. President Donald Trump’s latest threat to raise tariffs on Chinese imports have prompted market strategists to focus on the corrosive impact on Washington.

The prospects of an escalation in the conflict has seen the yen gain in recent days.

The currency rose 0.3 percent against the dollar at 109.640 yen, a 3-month high, taking its gains to more than 1 percent so far this month. According to the latest Commodity Futures Trading Commission data, speculators have further raised their net long dollar bets, including those against the yen.

Trump said on Wednesday that China “broke the deal” reached in talks with the United States, and vowed to not back down on imposing new tariffs unless Beijing “stops cheating our workers”.

Shin Kadota, senior strategist at Barclays in Tokyo, said the yen “owes much of its strength to gains made in the cross currency market. ‘Risk on, risk off’ has been the main market driver and the euro has been stuck in range as a result.”

The Japanese yen rallied to a six-week high against the dollar on Wednesday as growing concerns about the trade dispute between China and the United States prompted investors to take shelter in perceived safe-haven assets.

Data out earlier showed China’s trade surplus with the United States, a major irritant for Washington, expanded to $21.01 billion in April from a month ago, a factor that might provoke a hardening stance from U.S. officials.

“The threat of further escalation in the tariff war becomes real again and at the moment, it is just impossible to assign any probability to any scenario, positive or negative,” Societe Generale strategists said in a daily note.

Focus is on trade talks on Thursday and Friday in Washington, where Chinese Vice Premier Liu will try to salvage a deal that would avoid a sharp increase in tariffs on Chinese goods scheduled to take effect on Friday.

The prospects of an escalation rather than a resolution of the spat between the U.S. and China has seen the yen gain in recent days, with the currency up 0.22 percent against the dollar at 110.0 yen, taking its gains to more than 1 percent so far this month.

The New Zealand dollar was the other notable loser overnight after the central bank cut benchmark cash rates to 1.5 percent from 1.75 percent.

The kiwi was last off 0.1 percent, recovering somewhat after falling to $0.6525 in the immediate aftermath of the rate cut, its lowest since last November.

Elsewhere, the euro was up 0.13 percent at $1.1204, but holding within recent ranges as currency traders were still undecided on the inflationary outlook for the euro zone economy and the latest developments on the trade war front.

“The European Central Bank is likely to keep a close eye on the renewed escalation of the trade war as the real economic consequences could be considerable, affecting its monetary policy,” Commerzbank strategists said.

The pound fell for a third day, edging down 0.43 percent to $1.3018.

The Japanese yen rallied to a three-week high on Tuesday as disappointing data on Chinese manufacturing undermined risk appetite, with investors waiting for European data to see if that will push currencies out of recent trading ranges.

Forecasts are for a 0.3 percent rise in euro zone gross domestic product from the quarter before. That would be a bigger increase than the previous quarter and may be taken as a sign of stabilization.

Even such marginal growth could squeeze speculators who have been amassing large short positions in the euro, worth a net $14.8 billion in the week to April 23.

“Any signs of consolidation in the German CPI data and the eurozone GDP figures may lead to some unwinding of the extended short positions in the euro, particularly on the crosses,” said Valentin Marinov, head of G10 FX research at Credit Agricole in London.

But early trends in the currency markets were cautious after China’s official purchasing management index dipped to 50.1 April. Forecasts had been for no change from March’s 50.5 or an increase.

Some of the favored currencies in a low-volatility environment such as the Australian dollar and the Aussie/Swiss franc fell 0.2 to 0.3 percent.

Trading was thin with Japan on holiday, and set to get thinner on Wednesday when China and much of Europe will be off.

Against a basket of currencies, the dollar was flat at 97.839. On a monthly basis, it was up 0.6 percent and on track for a third consecutive month of gains.

The Federal Reserve’s two-day policy meeting, which ends on Wednesday, remains a hurdle for the dollar. No change in policy is expected, but the market wants to hear how Chairman Jerome Powell resolves the divergence between solid economic growth and slowing inflation.