FX Rate News

The dollar bounced back from a three-week low on Tuesday as market players bought it back, particularly against riskier peers, after Chinese authorities appeared to be trying to put a brake on recent rises in the yuan.

The Australian dollar lost about a half percent, taking an additional hit from media reports China has halted coal imports from the country as their relations deteriorate.

But overall risk sentiment was propped up by hope that former U.S. Vice President Joe Biden will beat President Donald Trump in the Nov. 3 U.S. election and push forward with a large stimulus to shore up a pandemic-hit economy.

The dollar index rose 0.1% to 93.190, trying to extend its rebound from Friday’s near-three-week low of 92.997, with the euro falling 0.17% to $1.1794.

The Chinese yuan fell 0.1% to 6.7500 per dollar, after the central bank set a weaker than forecast midpoint, offsetting any boost from strong Chinese trade data.

China’s central bank announced on the weekend the removal of reserve requirements for some foreign exchange forwards, cementing speculation Beijing wants to curb the yuan’s strength.

“Biden trades have been hot in the last several days, in which people sell the dollar, particularly against currencies that have suffered under Trump, like the yuan, the Mexican peso or the Canadian dollar,” said Masaru Ishibashi, joint general manager of Sumitomo Mitsui Bank.

“But if you think that Beijing is sending a message to rein in the yuan’s strength, then it might make sense to unwind that trade for now.”

The Mexican peso also fell 0.4% to 21.270 to the dollar while the Canadian dollar dipped 0.1% to C$1.3124 per dollar.

A Biden victory is seen as negative for the dollar also partly because his pledge to increase corporate tax would reduce returns from investments in the United States, putting pressure on the dollar even against safe-have currencies such as the yen and the Swiss franc.

The yen moved little at 105.43 per dollar while the Swiss franc traded at 0.9102 to the dollar, near its highest in three weeks.

Sterling traded above the key $1.30 level as hopes for a Brexit deal offset concern about pressure on the economy from new coronavirus restrictions British Prime Minister Boris Johnson has announced.

The pound stood near its strongest levels in two weeks against the euro, which changed hands at 0.9043 pound.

On the other hand, the Australian dollar dropped as much as 0.6% to $0.7165, not helped by media reports China has stopped taking shipments of Australian coal.

“Despite the positive risk sentiment, the Aussie appears to have been well contained by further indications that Chinese imports of met and thermal coal have been banned. This is important given that 22% of Australian thermal coal exports went to China in the last year and 28% of met coal,” said Rob Rennie, head of financial market strategy at Westpac.

“We stick to the view that the near-term risks for the A$ are lower and a dip below 0.70 through end October/ early November is still possible.”

The dollar held near three-week lows on Monday amid optimism about fiscal stimulus in the United States, while the yuan fell after China’s central bank changed its policy on yuan reserves.

The dollar index was steady, having seen its biggest loss in six weeks on Friday, when investors upped their bets that a fiscal stimulus package would be agreed to mitigate the economic fallout from COVID-19.

The Trump administration called on Congress to pass a stripped-down version of the relief bill on Sunday, while negotiations on a broader package continue.

The dollar has been buffeted by the on-again, off-again stimulus negotiations. Still, with Nov. 3 election only weeks away, investors are betting that Democrat Joe Biden is more likely to win the U.S. presidency and offer a larger economic package.

“Any negative fallout from a failure to reach a fiscal deal before the election will be dampened by expectations for even bigger stimulus after the election,” MUFG currency analyst Lee Hardman wrote in a note to clients.

“Market participants remain optimistic over a Blue Wave,” he added, citing polling data which shows a Biden lead.

The dollar index was at 93.118 at 0729 GMT, flat on the day and having almost completely reversed its recovery at the end of September.

The euro was down 0.2% on the day at $1.1808. In Europe, the World Health Organization has urged governments to restrict activity to combat a rapid rise in COVID-19 infections.

Speculators cut their euro long positions to a two-month low in the week to Oct. 6, weekly CFTC data showed.

European Central Bank President Christine Lagarde is due to speak at 1100 GMT.

The yen was up 0.1% against the dollar at 105.520. The safe-haven Swiss franc was flat against the euro at 1.07630 .

The riskier New Zealand and Australian dollars were both down around 0.2% on the day, having eased gains from Friday, when they rose to their highest in nearly three weeks .

The yuan fell after the People’s Bank of China (PBOC) said on Saturday that it will lower the reserve requirement ratio for financial institutions when conducting some foreign exchange forwards trading.

Analysts say the move was a bid to curb recent yuan appreciation.

The yuan reached a 17-month high on Friday in both onshore and offshore trade. It has gained more than 6% against the dollar since late May, driven by a favourable yield differential between China and other major economies.

At 0743 GMT on Monday, the onshore yuan was down 0.3% . The offshore yuan was at 6.7109 per dollar, also down 0.3% on the day.

The move was also cited as a reason for weakness in the China-sensitive Australian dollar.

“Markets may take this move as a signal the PBoC intends to slow CNY appreciation in the near term, though we note the accompanying statement included a vow to keep the exchange rate flexible, stabilize market expectations and maintain a “broadly stable” exchange rate,” UBS strategists wrote in a note.

“The next big move in the yuan may be linked to the U.S. election outcome and who will be negotiating trade with China for the next four years,” UBS added.

The safe-haven dollar and yen nursed losses on Thursday, after the revival of hopes for some U.S. spending improved investor sentiment and appetite for riskier currencies.

A flurry of late-Tuesday tweets from President Donald Trump, after he cancelled talks with Democrats over coronavirus relief, suggested he was open to piecemeal spending measures.

That lifted equity markets and commodity currencies and sank the safe-haven yen to a three-week low of 106.11 per dollar overnight. The dollar was weaker on most other majors.

The euro edged up 0.2% to $1.1767 and held there early in the Asia session. The risk-sensitive Australian dollar lifted off a one-week low and rose about 0.5% overnight to hold at $0.7137 in Asia.

With no fresh clues on stimulus, morning moves were slight and leaned in favor of the greenback. The New Zealand dollar slipped 0.4% after a central bank official said the bank was “actively working” on negative rates.

Top White House officials have played down the likelihood that anything gets passed, but House Speaker Nancy Pelosi is pursuing a standalone bill for aid to airlines.

“It looks like they still can’t agree on a bigger package,” said Commonwealth Bank of Australia currency analyst Joe Capurso. “If they could get an agreement on that, you’d get a bit more of a reaction and the U.S. dollar would fall.”

The overnight mood had been further supported by hints at even more easing from the U.S. Federal Reserve in the minutes of its September meeting.

Many participants had assumed the economy would be supported by fiscal spending, and some are open to further debate about the Fed’s bond buying program.

“This nuance did not come across in Powell’s post-meeting press conference nor in recent speeches,” National Australia Bank economist Tapas Strickland said in a note on Thursday.

“In that vein it is worth noting that the Fed’s (Loretta) Mester on Monday said she might support shifting asset purchases to more longer-dated bonds.”

Speeches at 1610 GMT and at 1800 GMT from Fed members Eric Rosengren and Raphael Bostic, respectively, will be closely watched for any further hints at the Fed’s internal debates.

Sterling and the New Zealand dollar lagged broad gains against the dollar overnight, and were weighed in early Asian trade.

The kiwi dipped 0.4% to $0.6558 after a Reserve Bank of New Zealand official told a media briefing on the bank’s policy tools that it was “actively working” on negative interest rates and a funding-for-lending program.

Concerns that the latest Brexit talks were proving less promising than hoped dragged on the pound, and it was last steady at $1.2918.

Bank of England Governor Andrew Bailey joins a panel discussion on the impact of Covid-19 at 0725 GMT where remarks on negative rates or other policy considerations could move the currency.

Also on the horizon is the U.S. vice presidential debate due to begin at 0100 GMT, infused with fresh significance by Trump’s battle with Covid-19. German trade data at 0600 GMT U.S. jobless figures due at 1230 GMT are also awaited.

The dollar was softer against riskier currencies on Tuesday on rising optimism that U.S. lawmakers could agree on new stimulus to blunt the economic impact of the coronavirus.

Risk appetite also improved after U.S. President Donald Trump left the hospital and returned to the White House following treatment for Covid-19, a development viewed as reducing political uncertainties in the near term.

“I think hopes of U.S. stimulus are the main driving force,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“As for Trump’s discharge, the impact is not clear-cut but it is seen as positive for risk environment to the extent that there are less worries about the White House getting caught in complete chaos and unable to make decisions,” he said.

The euro traded at $1.1792, following a gain of 0.58% on Monday.

The pound changed hands at $1.2990, tackling its resistance around $1.30, despite concerns about a no-deal Brexit.

The dollar advanced on the safe-haven yen to 105.66 yen, staying near its highest levels in three weeks.

The dollar’s index against a basket of six major currencies dropped to 93.381, touching its lowest level in two weeks.

U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke by phone for about an hour on Monday on coronavirus economic relief and were preparing to talk again Tuesday, continuing their recent flurry of activity working towards a deal on legislation.

White House Chief of Staff Mark Meadows said there is still potential for an agreement among lawmakers in Washington on more economic relief, and that Trump is committed to getting the deal done.

However, the renewed efforts in Congress to reach an agreement on relief funds for the pandemic-hit economy has been complicated by the spread of the coronavirus among key policy makers including Trump.

The president returned to the White House on Monday after a three-night hospital stay for Covid-19 treatment though White House physicians warned he may not be out of the woods yet.

“The market has been nervous about the possibility of a contested election, but it appears Biden is widening the lead, thus reducing the chance of markets not knowing the results for a long time,” said Yujiro Goto, chief currency strategist at Nomura Securities.

“And while markets have thought there will be corporate tax hikes if Democrats sweep both chambers as well as the president … that is being offset by the idea that there will be fiscal stimulus,” he added.

A “blue wave” election outcome would likely accelerate dollar weakness, said Zach Pandl, co-head of global forex at Goldman Sachs in New York.

“The former vice president would likely take a more multilateral approach to foreign policy issues, and would be less likely to surprise markets with tariff increases,” Pandl said, referring to Democrat presidential candidate Joe Biden.

In addition, a corporate tax hike would make U.S. stocks less attractive, and fiscal stimulus tends to depreciate a currency when it comes with high unemployment and low interest rates, he added.

Among the currencies that are not included in the dollar index, the offshore Chinese yuan maintained its firmness at 6.7281 per dollar, having hit its highest level since April last year on Monday.

The Australian dollar jumped 0.3% to $0.7205, after the Reserve Bank of Australia kept interest rates on hold at 0.25% despite widespread expectations of a rate cut.

Currency traders are also focused on the government’s annual budget with Canberra widely expected to keep the fiscal tap open for years to come.

The dollar index slipped slightly on Monday but was little changed from Friday’s close as financial markets waited for news about U.S. President Donald Trump’s health and developments in fiscal aid talks in Washington.

Trump said on Friday that he had tested positive for COVID-19, triggering investor flight to safer assets and a stock market sell-off.

But early in the Asian session, Trump made a surprise appearance in a motorcade outside the hospital where he is being treated, which helped improve risk appetite.

He could be discharged from the hospital today, according to his doctors.

“FX traders cannot agree on how to interpret the recent news flow,” Ulrich Leuchtmann, Commerzbank’s head of FX and commodity strategy, said.

“The biggest issue for the FX market is: it is uncertain whether this has made the biggest risk of the U.S, elections – a long political and legal battle about the result – any more or less likely,” he said.

“A battle of this nature is only likely if the contender Joe Biden wins,” he added. “That might have become more likely.”

Investors are also waiting for developments in talks in Washington about a coronavirus relief package after U.S. House Speaker Nancy Pelosi on Sunday reported progress i the discussions.

“Concrete developments have been thin on the ground and we doubt investors will want to chase risk assets until more clarity has emerged,” ING strategists said in a note to clients, adding they expected the dollar index to trade in tight ranges.

The dollar slipped slightly against a basket of currencies, but its index held close to recent ranges, down less than 0.1% on the day at 93.785 at 0650 GMT.

Dollar-yen rose 0.3% to 105.615 at 0659 GMT, recovering from its sharpest fall in more than a month on Friday.

Riskier currencies strengthened overnight but these gains abated by the time European markets opened.

The Australian dollar was up 0.2% at 0.71735, while the New Zealand dollar was down 0.1% at 0.6641.

The Reserve Bank of Australia’s policy meeting and the Australian budget announcement are on Tuesday.

Coronavirus restrictions in Auckland will be lifted this week, New Zealand Prime Minister Jacinda Ardern said.

The euro was up 0.1% at $1.17260 at 0712 GMT.

The safe haven Swiss franc was up, lifted by Japanese tech firm NEC saying it will buy Swiss financial software company Avaloq Group AG.

Euro-Swiss was down 0.2% at 1.07620 .Euro zone final PMIs for September are due at 0800 GMT.

British Prime Minister and the head of the European Union’s executive, Ursula von der Leyen, agreed in a phone call on Saturday to step up negotiations on a post-Brexit deal, as the Dec. 31 deadline approaches.

The pound was at $1.2917 at 0721 GMT, down 0.2% on the day .

In focus this week are the U.S. Federal Reserve’s meeting minutes due on Wednesday and European Central Bank meeting minutes follow on Thursday. Flash estimates for annual euro zone inflation came in weaker than expected on Friday, raising pressure on the European Central Bank to increase its stimulus.

The dollar was on the defensive at a one-week low on Thursday, as robust U.S. data and fresh hopes for U.S. fiscal stimulus had investors confident enough about economic recovery prospects to seek out riskier currencies.

Republican President Donald Trump’s administration has proposed a coronavirus stimulus package to House Democrats worth more than $1.5 trillion, and hopes are rising that both parties will reach a compromise.

Along with strong U.S. labor and manufacturing data, that helped stocks to rally, and the mood pulled the dollar to a one-week low of 93.664 against a basket of currencies.

Early in the Asia session, the New Zealand dollar extended gains to a one-week peak of $0.6635. The Aussie rose to $0.7183, also the strongest in a week.

“The two sides have come a long way,” Westpac FX analyst Sean Callow said of the possible relief bill.

“The rhetoric is reasonably conciliatory; I think we’re getting closer,” he said, adding that an agreement would help the mood in equity markets and likely spill over into currency trade, boosting riskier currencies at the dollar’s expense.

At the same time, jobs figures that showed U.S. private employers stepped up hiring more than forecast last month and that Midwest manufacturing grew faster than expected also fed in to the positive sentiment.

Chinese data on Wednesday had also shown the recovery on track in the world’s second-biggest economy.

The yuan edged up to a week high of 6.7530 in offshore trade on Thursday, though volumes are thin and the onshore market is closed for holidays until October 9.

Nevertheless, firmness in the safe-haven Japanese yen indicated that plenty of underlying caution still remains. The yen held at 105.45 on Thursday, after climbing in the wake of a chaotic first U.S. presidential debate.

The yen ended its best quarter since mid-2019 on Wednesday with a 2.4% gain over the three months to September 30 as some of the exuberance in risk assets faded, particularly in September.

Gains in the euro overnight were also muted after European Central Bank President Christine Lagarde hinted that a strategy overhaul, and a more accommodative approach to inflation, could be possible.

The euro edged up 0.22% on Wednesday and held at $1.17248 on Thursday. The pound edged up to $1.2941.

Final purchasing managers index figures are due in Europe and Britain later on Thursday, followed by the ISM manufacturing survey in the United States and jobless claims data – all providing an update on the progress of the global coronavirus recovery.

Speeches from Bank of England Chief Economist Andy Haldane, at 1020 GMT, and ECB Chief Economist Philip Lane, at 1545 GMT, will also be closely watched for hints as to the next monetary moves.

Volatility across asset markets is fueling a bounce in the battered dollar, showcasing the currency’s safe-haven status amid worries over growth abroad and U.S. political strife.

The buck is up nearly 2% in September as of Tuesday against a basket of currencies, on track for its best monthly gain in 14 months and outpacing the performance of many other traditional destinations for nervous investors in what has been a turbulent period for stocks.

Gold, for example, is down nearly 4% in September, while the S&P 500 utility sector is little changed, and the Japanese yen is flat. Yields on the 10-year U.S. Treasury notes, which move opposite to prices, started the month at 0.67% and last traded at around 0.64%. The S&P 500 is off nearly 5% in the same period.

Several catalysts are stoking the dollar’s rebound, which has put the greenback at its highest level since late July. The U.S. currency’s 8% decline from its highs in March has left it looking comparatively cheaper than assets like gold, which stood at all-time highs last month. The yen’s haven status, meanwhile, may have suffered in the wake of a pandemic-era collapse in global rates.

“The dollar’s resurgence has … to do with the response of the capital markets to the global wave of de-risking,” said Thanos Bardas, managing director and co-head of global investment-grade fixed income at Neuberger Berman.

At the same time, many of the factors that made the dollar less attractive in recent months appear to be dissipating. COVID-19 cases are accelerating in Europe, threatening expectations of growth that boosted the euro, while worries over a hard Brexit have weighed on the British pound.

Additionally, speculation over the possibilities of negative interest rates in the UK and Australia have dimmed the allure of those currencies to some investors, although such a move seems far off. In the United States, uncertainty stemming from the Nov. 3 presidential election and the shrinking likelihood of lawmakers agreeing on a fiscal stimulus package this year have fueled haven demand.

Bardas said Neuberger added to bets that the dollar will rise against the euro, a currency he believes is overvalued after a 10% run since March.

Chester Ntonifor, foreign exchange strategist at BCA Research, said spikes in equity market volatility have tended to boost the U.S. currency, as does turbulence in foreign exchange markets after long periods of placid trading.

Broader currency market volatility, as measured by Deutsche Bank, shot up to 8.4 on Tuesday, from 5.93 in late July.

The dollar index has risen by an average of roughly 2% in the two most recent upsurges of volatility.

Others see the rally as a chance to take profit on the dollar or place bets against the currency, believing it will resume weakening once markets grow calmer.

“I have been a dollar bull. But I am using this opportunity to sell dollars when everybody is buying,” said Momtchil Pojarliev, head of currencies at BNP Asset Management, who is selling dollars to buy yen.

The dollar’s rally received a tailwind from a “nasty short squeeze,” as investors betting on a weaker U.S. currency were forced to unwind their bets in recent weeks, said Paresh Upadhyaya, director of currency strategy and portfolio manager at Amundi Pioneer Asset Management.

The possibility of further positioning unwinds remains – net bets on a weaker dollar in futures markets stood at $33.6 billion in the latest week, data from the Commodity Futures Trading Commission showed, near a nine-year high.

But Upadhyaya has added to his fund’s anti-dollar bets by buying the euro and Czech koruna.

“This is a healthy correction that is needed to ensure that a further depreciation in the dollar has legs,” he said.

The dollar hovered near a two-month peak against a basket of currencies on Monday as doubts about economic recovery persisted before a barrage of economic data and political developments in the United States.

A rebound in U.S. stocks on Friday has helped curb the ascent of the dollar, considered a safe haven, but signs of slowdown in the nascent recovery from the pandemic and political uncertainties have kept investors on guard.

The dollar index slipped to 94.21. It reached a two-month high of 94.745 last week and posted its biggest weekly rise since early April. Against the yen, the dollar was more subdued at 105.36 yen.

The pound jumped to $1.2896 on hopes Britain could secure a Brexit trade deal with the EU.

The euro rose 0.3% to $1.1661 after dropping to $1.16125 on Friday, its lowest in two months.

“Last week, widening credit spreads as seen in iTraxx Crossover and in European financials were seemingly a key driver for weakness in euro/dollar,” said Christin Tuxen, head of research at Danske Bank.

“Indeed, rising global and notably European risk aversion continue to be clearly U.S. dollar positive, and notably investors entered this period of questioning the risk/reflation/recovery theme stretched on dollar shorts.”

Data on U.S. currency futures positions released on Friday also pointed to further upside potential for the dollar, with speculators holding a big net short position in the currency which they could move to cover if the greenback moves higher.

U.S. Commodity Futures Trading Commission data showed speculators held a net short position of $33.989 billion , up from $31.524 billion the week before and near the highest level in almost 10 years.

The flip side of that was a large net long positions in the euro, which showed a slight increase last week to $27.922 billion.

“We think euro/dollar should find good long-term demand below the 1.1600 area, but really require some better news on the global recovery – effective lockdowns, vaccines, new stimulus – before the euro/dollar rally fully resumes,” ING said in a note to clients.

Investors are now looking to the first U.S. Presidential debate on Tuesday.

“Few people will be trying to bet on the election outcome. At least they will wait until tomorrow’s TV debate,” said Kyosuke Suzuki, director of forex at Societe Generale.

The New York Times reported on Sunday that President Donald Trump paid little in income taxes in recent years, claiming heavy losses from his business enterprises that offset hundreds of millions of dollars in income.

Meanwhile, worries are growing that the economic recovery is slowing as many stimulus programmes have expired, curbing consumer spending.

The week provides markets with more data on the health of the world’s biggest economy, including consumer confidence on Tuesday, a manufacturing survey and consumer data on Thursday and jobs data on Friday.

Elsewhere, the Turkish lira briefly dropped 1.6% to a record low of 7.8000 per dollar.

The lira had enjoyed a rare bounce after an interest rate increase late last week, but the gains faded amid scepticism about how it would filter through into financial market rates.