Currency markets tread water

Stimulus talks back on

After abruptly ending talks on a stimulus package, President Trump has backtracked, saying he’s willing to discuss a trimmed-down stimulus package. The Democrats favor a larger package, but at least the two sides are talking again.

Caught between a storm of US presidential tweets and conflicting information from Washington DC, currency markets have stayed on the side-lines most of this week, having been burned buying into fiscal stimulus hopes earlier. That state of affairs continued overnight with the US dollar index almost unchanged at 93.57 as the threats of presidential induced whipsaws crush volatility.

That has seen G-10 currencies content to range-trade into the week’s end. However, the pro-cyclical Australian and New Zealand dollars have advanced this morning after a firm PBOC fix for USD/CNY and the outperformance of China data.

After an 8-day holiday, China has returned to work with the onshore yuan gapping higher to reflect the gentle retreat of the US dollar on international markets over that period. The PBOC set its reference rate at 6.7796 this morning, but USD/CNY has gapped lower to 6.7200, playing catchup to the offshore USD/CNH, which has fallen to 6.7120 as of this morning.

The jump in the yuan reflects the modest US dollar weakness over the past week, as US fiscal stimulus hopes rose, but also the outperformance of the China economic recovery on all front. USD/CNY has now broken through 6.7500, suggesting further yuan strength lies ahead. USD/CNY has longer-term support at 6.6700, and we expect USD/CNY to range between 6.6700 and 6.7500 over the next week. The yuan’s performance should also be supportive of regional Asian currencies.

For today, like equities, currency markets have put predicting the White House in the too hard box, and are likely to remain side-lined, wary of presidential tweet risk.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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