FX & market recap:
The US dollar retreat on the back of improved risk sentiment came to a screeching halt overnight. President Trump’s “Blame China for COVID-19” election strategy came to the forefront overnight after he took a thinly veiled shot at Xi Jinping, tweeting: “Spokesman speaks stupidly on behalf of China, trying desperately to deflect the pain and carnage that their country spread throughout the world. Its disinformation and propaganda attack on the United States and Europe is a disgrace...It all comes from the top. They could have easily stopped the plague, but they didn’t!”
His re-election strategy was evident with his follow-up tweet, “China is on a massive disinformation campaign because they are desperate to have Sleepy Joe Biden win the presidential race so they can continue to rip-off the United States, as they have done for decades, until I came along!” China is also irked at the US for having the audacity to acknowledge Taiwan. Yesterday, Secretary of State Mike Pompeo sent a congratulatory message to the Chinese President for winning a second term. China’s foreign Ministry said Pompeo’s message “severely damaged peace and stability.” The tweets knocked the major Asian equity indices lower, and sparked demand for US dollars. European equity indexes followed Asia’s lead, and dropped led by a 1.33% drop in Germany’s DAX. Weak Eurozone PMI data contributed to the selling pressure.
Canadian dollar highlights:
USD/CAD rebounded from yesterday’s 1.3870 low and climbed to 1.3945 overnight. Bank of Canada Deputy Governor Timothy Lane warned that the post COVID-19 recovery would see weaker supply and demand, but with depressed inflation levels. USD/CAD gains are slowed by rising crude prices. Today’s weekly US jobless claims report is the key focus. A weaker than expected report may lead to US dollar demand as it would suggest the recovery is less robust than expected.
EUR/USD traded with a negative bias, in a narrow range, falling from 1.0979 at the NY close to 1.0953 in Europe. The negative risk sentiment stemming from the China/US spat and weak Markit Manufacturing PMI data (actual 40.6) weighed on prices. The losses were reversed in early NY trading and EUR/USD climbed to 1.0993 ahead of today’s weekly jobless claims report.
British pound highlights:
GBP/USD dropped to 1.2187 from 1.2238 in Asia on the back of the poor risk sentiment. Prices remained near the Asia lows until late in the European morning, when they rebounded to 1.2245. Traders dismissed weak UK Manufacturing PMI data (actual 27.8) as stale.
Asia Pacific highlights:
USD/JPY traded in a 107.53-84 range. Prices were undermined by a dip in US Treasury yields, and mild safe-haven demand for yen. Meanwhile AUD/USD and NZD/USD dropped on the back of broad demand for US dollars. Comments by RBA Governor Philip Lowe saying the prospect of negative rates are still extraordinarily unlikely, didn’t have any impact.