Dollar in the doldrums- U.S. politics, Fed minutes eyed

Published 17/08/2020 in Business News, Economy & Finance

Dollar in the doldrums- U.S. politics, Fed minutes eyed

SINGAPORE (Reuters) – The dollar slipped marginally and commodity currencies inched higher on Monday as investors were relieved by a delay in the review of the U.S.-China trade pact which left the deal intact.

The moves in the Asia session were modest, as weak data and uncertainty ahead of a week that includes Federal Reserve minutes and the Democrats’ nomination convention kept a lid on sentiment.

Against a basket of currencies =USD the dollar traded under gentle pressure at 92.987, roughly in the middle of the range it has held since dropping to a two-year low in late July.

The risk-sensitive Australian dollar AUD=D3 inched up to a week high of $0.7196, poking around the top end of a channel it has traded in for a week. The oil-sensitive Canadian dollar CAD=D3 also edged 0.1% higher to C$1.3253 per greenback.

The United States and China postponed a Saturday review of their Phase 1 trade deal, people familiar with the plans told Reuters, citing scheduling conflicts.

“That’s good news in the sense that it’s something we can place on the back burner for now,” said National Australia Bank senior foreign exchange strategist Rodrigo Catril.

“But there are other uncertainties coming up that need to be resolved,” he said, pointing to U.S. politics as a presidential election looms, and new virus hot spots in Europe that could challenge the perception that the euro is on an uptrend.

Markets are also looking to the Federal Reserve minutes from last month’s meeting, due to be released on Wednesday, for any clues about an anticipated shift in the policy outlook.

Speculation is rife the Fed will adopt an average inflation target, which would seek to push inflation above 2% for some time to make up for the years it has run below it.

“The bond market is key here,” said Chris Weston, head of research at Melbourne brokerage Pepperstone. “If the Fed can drive down real yields then the dollar will follow, and gold will rally – and vice versa.”

The yield on benchmark 10-year U.S. debt rose almost 15 basis points last week, its sharpest weekly rise in two months, which weighed on the yen by attracting investment from Japan.

U.S. 10-year yields US10YT=RR dipped a tiny bit to 0.7012% on Monday, while the yen was a tad firmer at 106.51 per dollar.

For a graphic on Yield bounce arrests dollar decline:

EUR=EBS was 0.1% higher on the dollar at $1.1857 and sterling GBP= inched forward to $1.3096.

The other area where a divergence is emerging is the Antipodes, where anticipation of the Reserve Bank of New Zealand taking rates negative next year is weighing on the kiwi.

New Zealand delayed a general election by a month on Monday as it grapples with a new outbreak of the coronavirus in Auckland.

The kiwi dipped 0.1% on the dollar to $0.6531 and fell to an almost two-year low of NZ$1.1017 per Aussie AUDNZD=.

“The longer New Zealand is in its second lockdown, the higher the risk of more monetary policy easing by the Reserve Bank of New Zealand,” said Commonwealth Bank of Australia analyst Kim Mundy.

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