· Dollar on defensive as U.S. stimulus hopes, Trump discharge boost risk sentiment
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.
However, 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 dollar's index against a basket of six major currencies =USD dropped to 93.381, touching its lowest level in two weeks.
The euro traded at $1.1792 EUR=, following a gain of 0.58% on Monday.
The pound changed hands at $1.2990 GBP=D4, 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 JPY=, staying near its highest levels in three weeks.
Chinese yuan maintained its firmness at 6.7281 per dollar CNH=D4, having hit its highest level since April last year on Monday.
· The Data Agenda
While most of the focus is on Trump and what is happening in the US, there are also some interesting central bank speakers that will be appearing today.
The most important speaker in Europe is clearly the ECB boss Christine Lagarde and her comments will always be market-moving for the EUR/USD. There has been talk that the ECB could adjust its inflation target similar to the US, so that is one to watch.
Otherwise, the bulk of the speakers are from the Fed including Jerome Powell, which comes ahead of the FOMC minutes this week as well.
Data wise we look to construction PMI for the UK and the GBP/USD, while WTI traders will want to see the latest EIA Short-Term Energy Outlook.
· DXY OVERVIEW
* “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 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.
· More trouble ahead for erratic emerging market currencies - Reuters poll
Volatility in emerging market currencies will not let up in the next six months as U.S. presidential election jitters mount and domestic economic growth tapers off, a Reuters poll of market strategists showed.
Most emerging market currencies were forecast to weaken or at best cling to a range over the next three to six months but will rise about 2% on average in a year, supported by a weaker dollar, the Sept. 28-Oct. 5 poll found.
· In Tokyo, Pompeo seeks to shore up support among Asian allies
U.S. Secretary of State Mike Pompeo on Tuesday visited Toyko to meet with some of Washington’s closest allies in Asia, Japan, Australia and India, to shore up support against what the United States says is China’s dangerous and growing regional influence.
The visit, which was supposed to include trips to Mongolia and South Korea, was cut short after President Donald Trump was diagnosed with COVID-19. It is Pompeo’s first trip to East Asia since July 2019 and comes as ties between the United States and strategic rival China are at their worst in decades.
The one-day visit includes a meeting of foreign ministers of the Quad grouping of nations: the United States, Australia, India and Japan.
While Washington has been looking to build support among Asian allies against Beijing, analysts have said China’s neighbours want to avoid a direct confrontation because of economic ties.
· Goldman Sachs says Asia is ‘best positioned’ for economic recovery
Asia is well placed for economic recovery compared to the rest of the world because it has mostly succeeded in containing the coronavirus, Goldman Sachs said this week.
“We think Asia’s really the best positioned of the major regions right now, just given the good control of the virus in most of the region outside of India and some parts of Southeast Asia,” said Andrew Tilton, chief Asia economist at the investment bank.
Globally, he said momentum in the industrial sector remains good and he is “reasonably upbeat on the recovery going into 2021.”
He also weighed in on how U.S. stimulus and presidential election results could affect growth in Asia.
Tilton added that if Democratic presidential nominee Joe Biden were to win the election, it would affect Washington’s tariff and trade policies. “We do think the result is very important for Asia and for global activity broadly.”
He also said new stimulus measures from Washington would be good for Asia.
· China’s economic recovery from the coronavirus will lift its neighbors in Asia, says Invesco
Economies in Asia are set to benefit as China’s shows a strong rebound from the coronavirus pandemic, says Invesco’s David Chao.
“China’s economic recovery will lift surrounding Asian economies to a certain extent,” Chao, global market strategist for Asia Pacific at the firm, told CNBC’s “Street Signs Asia” on Monday.
In particular, the focus is on “whether the Chinese consumer can quickly return back to normalized activity,” Chao said. “I think that the Chinese will have much more impact on boosting other Asian economies.”
· Australia’s central bank keeps rate steady, signals easing ahead
Australia’s central bank left its cash rate at a record low on Tuesday but hinted at further monetary easing to bolster the coronavirus-hit economy, which is suffering its worst contraction since the Great Depression.
The Reserve Bank of Australia (RBA) kept the rate unchanged at 0.25%, as widely expected in a Reuters poll, and at the level it has stood since an emergency cut in mid-March.
“The Board views addressing the high rate of unemployment as an important national priority,” RBA Governor Philip Lowe said in a statement announcing the outcome of the policy meeting.
“The Board continues to consider how additional monetary easing could support jobs as the economy opens up further.”
· Japan eyes stress test on major banks to gauge impact of COVID-19 on capital
· Scotland to impose two-week mini lockdown from Friday: Sun newspaper
· Oil prices edge up after Trump's return to White House
Oil prices rose on Tuesday following U.S. President Donald Trump’s return to the White House from hospital after being treated for COVID-19 last Friday, while another storm brewing in the U.S. Gulf of Mexico posed a threat to refineries.
Prices fell sharply last Friday when Trump went into hospital, then climbed more than 5% on Monday after he said he would return to the White House and as hopes grew that a deal could be agreed for a U.S. economic stimulus package to counter the impact of the coronavirus pandemic.
U.S. West Texas Intermediate (WTI) crude CLc1 futures were trading up 24 cents, or 0.6% at $39.46 a barrel at 0435 GMT.
Brent crude LCOc1 futures rose 21 cents, or 0.5%, to $41.50 a barrel.
Reference: Reuters, CNBC, Marieclaire, CNN, FXleaders
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