Aussie, Kiwi Surge as Investors Pin Hopes on US-China Trade Deal

The strong gains in the Asian stock markets are spreading to emerging market currencies putting pressure on the U.S. Dollar early Friday. The major stock indexes in Asia are posting solid gains on a report that U.S. President Donald Trump has asked his cabinet members to start drafting a potential trade deal with Beijing.

The news of a potential trade deal with China is spreading like wildfire across the markets especially in Australia and New Zealand where the AUD/USD is trading at its highest level since September 27 and in a position to do more damage to the upside. The NZD/USD is also soaring with huge upside momentum.

The U.S. Dollar is also losing ground to the British Pound after the Bank of England kept interest rates steady on Thursday and hinted at slightly faster future rate hikes if Brexit goes smoothly. The Euro is also starting to claw back recent losses.

The Dollar/Yen is moving higher, however, with the stock market rally kicking off the carry trade and encouraging investors to lift their safe-haven Japanese Yen hedges.

Traders are also lifting safe-haven U.S. Treasury market hedges. This is allowing yields to move higher ahead of today’s U.S. Non-Farm Payrolls report.

Commodity markets are also seeing some increased volatility. The most interesting market and perhaps the trickiest to decipher at this time is the gold market. Gold prices surged on Thursday after a steep drop in the U.S. Dollar. However, with stocks rallying, gold may lose its recent appeal as a safe-haven asset. Rising interest rates could also put pressure on gold price again.

Gold is trading marginally lower early Friday as investors try to figure out how to play the market in light of the new develops.

Crude oil is another interesting market to watch. With prices down over $13.00 since early October, the market may be technically oversold, but so far, we aren’t seeing any signs of buyers. A new trade deal with China should be bullish for crude if you believe that the trade dispute between the U.S. and China has slowed global economic growth and raised worries over future demand.