Aussie dollar falls amid feud with China, traders cash in gains

Published 09/06/2020 in Business News, Economy & Finance

Aussie dollar falls amid feud with China, traders cash in gains

LONDON (Reuters) – The Australian dollar fell nearly 2% on Tuesday after China’s education ministry warned students to carefully consider studying there amid tension between the trading partners.

The dollar found some footing, rising against tearaway commodity currencies for the first time in June as investors paused to take profits from the risk-on mood seen in the markets in the past two weeks.

The latest round of exuberance, which continues to drive stock markets higher, was last week’s U.S. jobs data for May.

However, a stronger Japanese yen pointed to trepidation over the U.S. Federal Reserve’s next move at its two-day meeting starting later in the day.

“What surprised me is how the Australian dollar ignored up until now the deterioration of the relationship between Beijing and Australia,” said Jane Foley, senior currency strategist at Rabobank.

“There’s been quite a few comments from China to Australia over the last few weeks and yet the Australian dollar managed to push up to 70,” she added.

“I suspect that one of the reasons that it fell back today was, yes it was the comments, but I think the market was sensing that the Australian dollar was also quite overbought around those levels.”

The Australian dollar AUD=D4 fell 1.7% to 0.6899 – a five-day low – after rising to an 11-month high of 0.7043 in the Asian trading session. The New Zealand dollar NZD=D4 followed suit and fell 1.3% to 0.6469, off the 4-1/2-month high.

(Graphic: Aussie dollar falls after 11-month high – JPY=EBS.

“Japanese names have been very active since Monday in dollar/yen, trying to trade off the chance of some kind of yield-curve control from the Fed,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

“I personally don’t think yield curve control is necessary now, but the dollar is under clear selling pressure.”

The euro fell 0.3% to $1.1258 EUR=EBS.

A statement from the Fed is due at 1800 GMT on Wednesday.

It is not expected to change interest rate settings though in recent days futures pricing shows investors have abandoned expectations of rates dipping below zero next year.

Elsewhere, the Norwegian crown fell 1.7% versus the U.S. dollar to 9.4230 NOK=D3 and more than 1% versus the euro to 10.5980 EURNOK=D3, jumping off the three-month highs it touched the day before.

The Canadian dollar fell 0.7% to $1.3484 CAD=D3.

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