Dollar Mixed, US-China Tensions Rise Amid Stimulus, Recovery Hopes

Summary: The Dollar ended mixed against its rivals as US-China tensions rose amid a EUR 750 billion EU Commission recovery fund proposal. A war of words ensued between Chinese and US officials. China’s Global Times said that the US has “hidden key information and failed to handle the coronavirus pandemic properly, leading to the global health crisis.” President Trump said he would announce a US response to China’s planned security legislation on Hong Kong before the end of this week. Against the Chinese Offshore Yuan, the US Dollar (USD/CNH) rose to finish at 7.1800 (7.1450 yesterday), an 8-month high. Total deaths in the US due to the coronavirus pandemic climbed over the 100,000 mark, hitting 101,833. The Euro cracked the 1.1000 level, finishing at 1.1007 (1.0985) up 0.3% against the Greenback. Meantime the risk leading Australian Dollar sagged, pulling back to 0.6620 from 0.6660 yesterday. Sterling slipped to 1.2290 (1.2338) driven by the UK’s repeated refusal to extend the transition period of Brexit. The Dollar was neutral against the Canadian Loonie at 1.3770 (1.3780) despite lower Oil prices. Brent Crude Oil slumped 5.8% to USD34.85 (USD36.65) after an International Energy Agency (IEA) report saw a record drop in global energy investment.

FXEmpire USDCNH Chart - 28 May 2020
FXEmpire USDCNH Chart – 28 May 2020

Wall Street stocks rallied on the European Commission’s proposed stimulus plans shrugging aside rising China-US tensions. Banking sector equities outperformed. The Dow was up 2.1% to 25,598 (25,067) in late New York trade. The S&P 500 added 1.4% to finish at 3,040 from 2,997 yesterday. Global bond yields were little changed.
Data released yesterday saw the US Richmond Manufacturing Index at -27.0, beating median expectations at -40.0 and the previous month’s -53.0.

On the Lookout: Hopes continued to rise for an expected economic recovery as Covid-19 restrictions are eased. The European Commission’s proposal for a Euro 750 billion stimulus plan to bolter economies ravaged by the Covid-19 pandemic buoyed risk appetite. Tensions between China and the US remain elevated as leaders from both countries continue with their war of words. Meantime the death toll from the pandemic in the US and the new epicentre Brazil continue to climb. This is the reality. The elevated risk appetite which saw a Dollar retreat yesterday is fading.
Some primary economic reports are scheduled for release today which kick off with New Zealand’s ANZ Business Confidence Index followed by Australia’s Q1 Private Capital Expenditure. Euro area reports see Germany’s Preliminary CPI (May) and Spain’s Annual Flash CPI (May). Canada releases its Current Account. US reports its Preliminary Q1 GDP, Headline and Core Durable Goods Orders, Weekly Unemployment Claims and Pending Home Sales.

Trading Perspective: While the Euro rallied against the US Dollar, other currencies eased including risk and EMS. The Dollar Index (USD/DXY) a favoured gauge for the Greenback’s value against a basket of 6 foreign currencies was little changed at 98.97 (98.98).
Rising tensions between the US and China pushed the USD/CNH pair to 8-month highs while the risk leader Aussie Dollar retreated from its cycle high reached yesterday. The Greenback also advanced against most of the Asian and Emerging Market currencies. The bell weather for the Dollar has switched to the Chinese Yuan and Asian currencies. The others, majors included will follow. Which should see the US Dollar grind back higher.

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