Dollar, Yen May Recover on Fed Impact of US-China Trade Talks

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TALKING POINTS – US DOLLAR, YEN, AUSSIE DOLLAR, US-CHINA TRADE TALKS

  • Aussie and NZ Dollars rise as Trump delays tariff hike on Chinese imports
  • Xinhua warns that trade talks will become harder, cooling early optimism
  • Yen, US Dollar may rise as markets weigh trade deal impact on Fed policy

The Australian and New Zealand Dollars outperformed in Asia Pacific trade, tracking regional stocks higher. This came after US President Donald Trump opted to postpone a tariff hike on $200 billion in Chinese imports to trigger on March 1, citing positive progress in on-going negotiations.

China’s state-run Xinhua news agency dampened the mood however, saying trade talks may have “new uncertainty” and are likely to become harder in the final stages. The anti-risk JapaneseYen swiftly turned higher, the similarly-minded US Dollar stabilized, and pro-risk commodity bloc currencies stalled.

FED OUTLOOK RETHINK MAY SPOIL US-CHINA OPTIMISM

Tellingly, bellwether S&P 500 futures have also trimmed earlier gains (though they still point higher). That suggests the markets are not as inspired as might have been expected by (at least) a stay of execution on US-China trade war escalation. This may hint that sentiment is more fragile than it appears to be.

The possibility that a US-China trade deal will revive Fed rate hike prospects might be one reason that traders are skittish. The week ahead is loaded with policy-relevant event risk that might show the Fed is not as inherently dovish as previously thought. Waiting for it to pass may cool risk-on conviction in the interim.

What are we trading? See the DailyFX team’s top trade ideas for 2019 and find out!

ASIA PACIFIC TRADING SESSION

Dollar, Yen May Recover on Fed Impact of US-China Trade Talks

EUROPEAN TRADING SESSION

Dollar, Yen May Recover on Fed Impact of US-China Trade Talks

** All times listed in GMT. See the full economic calendar here.

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