The Dollar Takes a Back Seat on Hopes of an End to the Trade War

Optimism over a trade agreement between the U.S and China provided a boost for risk appetite at the start of the week. The economic calendar is light.
Bob Mason
Arms trade business concept.

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side. Key stats were limited to January building approvals and 4th quarter gross company operating profits out of Australia.

For the Aussie Dollar,

Building approvals rose by 2.5% in January, month-on-month. Forecasts were for a 1.5% increase following December’s revised 8.1% slide. According to the ABS,

  • Private dwellings excluding houses rose by 2.7%. Private houses increased by 2.7%.
  • Non-residential building approvals rose by just 0.4%.

4th quarter company gross operating profits increased by 0.8%, quarter-on-quarter. Profits fell short of a forecasted 3% increase and a 3rd quarter 1.9% rise. According to the ABS,

  • 4th quarter gross operating profits increased by 10.5% year-on-year.

The Aussie Dollar moved from $0.70982 to $0.70826 upon release of the figures. At the time of writing, the Aussie Dollar stood at $0.7085, up by 0.08% for the session.

Elsewhere,

The Japanese Yen stood at ¥111.94, against the U.S Dollar, down by 0.0.4% for the session. The Kiwi Dollar rose by 0.13% to $0.6809 through the early part of the day.

Market risk sentiment provided direction through the Asian session. Support came from optimism on trade talks, though with a number of key central banks delivering monetary policy decisions and economic forecasts this week, it may not all be bells and whistles.

In the Asian equity markets, the CSI300 topped the Asian majors, up by 1.18%. The Nikkei and ASX200 closed out the day with 1.02% and 0.40% gains respectively. For the Hang Seng, a 0.74% gain ahead of the close was somewhat tempered. The index losing some of the upside gained from earlier in the day.

The Day Ahead:

For the EUR

After a hectic end to last week, it’s a more sedate affair today. Key stats scheduled for release are limited to Spanish unemployment figures. Following an 83.5k increase last month, the numbers may well turn out to be on the lower side.

Outside of the numbers, we can expect chatter from the Oval Office to influence risk sentiment. The markets will also be looking ahead to this week’s ECB policy decision and all-important press conference.

The big question is whether domestic consumption will be enough to offset negatives surrounding trade on which the Eurozone economy is heavily dependent. The only real hope for the EUR near-term has to be a pickup in market risk appetite. However, with Trump ready to unleash tariffs on EU goods, the upside can’t be too significant.

At the time of writing, the EUR down by 0.02% at $1.1363.

For the Pound

Economic data due out this morning is limited to February construction PMI numbers. The near-term debate will be on whether the BoE will make a move on rates this year. While the probability of a rate hike has increased, it ultimately hangs on how Brexit unfolds over the next 10-days and beyond.

News over the weekend was in support of Theresa May and her Brexit deal. An alignment of the Tory party is a must if they are to retain power. The Labour Party are waiting in the wings and, in the event of 12th March vote going against the deal, a vote of no confidence and an EU referendum could ensue.

Either way, the hope is that Britain will avoid a no-deal departure from the EU. Would the Pound really rally to $1.40 levels if Theresa May’s deal gets thrown out and Parliament votes for an extension?

The Labour Party would certainly rain on economic growth prospects and that’s never a good thing.

At the time of writing, the Pound was up by 0.31% to $1.3243.

Across the Pond

There are no material stats scheduled for release out of the U.S today. Following an action-packed week that had the U.S President up front and center, the focus will likely remain on trade talks, Mueller’s investigation and whether the U.S President looks to drag the EU into the trade battlefield to detract from the Michael Cohen fallout.

At the time of writing, the Dollar Spot Index was down by 0.09% to 96.437. Sentiment towards trade talks weighed early on in the day.

For the Loonie

Following a dire day for the Loonie on Friday, crude oil prices will be the key driver as focus shifts to the Bank of Canada’s policy decision and forward guidance on Wednesday.

A pickup in crude oil prices may not be enough going into Wednesday, however. A contraction in the economy in December will have the doves out in full force.

The Loonie was up by 0.04% to C$1.3292, against the U.S Dollar, at the time of writing. Early support came from a slight uptick in crude oil prices.

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