Dollar, Risky Assets Rebound After Upbeat Speech by Chinese President Xi Jinping

The U.S. Dollar is recovering early Tuesday from a steep sell-off Tuesday that was fueled by concerns over the simmering trade conflict between the United States and China. The Greenback was also pressured against a basket of currencies following comments from European Central Bank President Mario Draghi that were deemed hawkish by the trading community.

The catalyst behind Tuesday’s early rally is an upbeat speech by Chinese President Xi Jinping. Speaking at a Boao Forum for Asia in Hainan province, Xi promised to open the country’s economy further and to cut import tariffs on products including cars. The news helped ease concerns about a trade conflict between the world’s two economic superpowers.

Xi challenged President Trump when he said China’s reform and opening up will definitely succeed and that a Cold War mentality, zero-sum thinking, and isolationism would hit walls.

At 0535 GMT, the June U.S. Dollar Index futures contract is trading 89.590, up 0.56 or +0.06%.

Forex

Increased demand for higher risk assets in the wake of the positive comments from Xi are helping to reverse yesterday’s gains in the Euro and Japanese Yen while helping the export-driven Australian and New Zealand Dollars.

On Monday, the EUR/USD rallied after ECB President Mario Draghi said the weakness in the stock market this year has not materially impacted Euro Zone financial conditions. He went on to suggest that policymakers remain calm about the recent market volatility.

Global equity markets rose on Tuesday in reaction to Xi’s positive comments, making the safe-haven Japanese Yen a less-desirable asset. However, the rally in the USD/JPY may be limited by tensions in the Middle East stemming from perceived risks in Syria. On Monday, President Trump promised quick, forceful action in response to a suspected chemical weapons attack in Syria.

The early positive shift in risk sentiment also helped drive up demand for the Australian Dollar.

Gold

June Comex gold futures reversed earlier gains in response to a rebound in the U.S. Dollar and firmer global equity markets. On Monday and early Tuesday, gold prices ticked up as the dollar struggled and Asian stocks faltered. Losses may be limited by concerns that the U.S. may step up its military response to reports of a deadly poison gas attack on a rebel-held town in Syria.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are spiking higher early Tuesday, continuing the strong rebound rally which began on Monday. Today’s early rally is being driven by concerns that the escalation of military activity in the Middle East could lead to a supply disruption. Upbeat comments from Chinese President Xi Jinping are also supporting demand for higher risk markets like crude oil. Weighing on gains, however, are concerns over rising U.S. production.