Most USD links have remained well within their reach yesterday, although the US dollar and Yen showed slight weakness against most other currencies, aside from the New Zealand and Canadian dollar business.
Wall Street set new record highs for the USA500 spirit USA100 yesterday. PE ratios have been stretched, but trend tracking, index tracking and the smoother of massive global stimulus are pushing stocks up, creating a fundamental value reality gap. There was also good news from the US and China on the Phase 1 trade deal, with China’s Ministry of Commerce reporting a “constructive dialogue” after the US Treasury declared that “both sides see progress.” Spirits have also been lifted by the development of COVID-19 treatments and vaccinations.
Against this background EURUSD has generally flown a narrow range near 1.1800, but it has risen moderately from Monday’s closing level in New York, despite the fact that German GDP revised slightly higher in the second quarter and the German Ifo index better than expected as current conditions improve. USDJPY produced a 4-day high 106.35, reflects a slight underperformance of the yen amid the risky environment. Cable something lifted, reaching one 1.3116 intraday high before coming back down 1.3100, stays comfortably within yesterday’s range. Ditto for AUDUSD, with few modest on the day while NZDUSD ebbing against the trend towards a 5-day low 0.6515. Lockdown measures and a new low in NZ 10-year bond yield weighed on the Kiwi dollar.
The Canadian dollar is also weakening, with USDCAD posting a 5-day peak at 1.3240. USOIL prices have calmed down after not seeing a sustained rise yesterday, despite concerns about disruption to oil production facilities and distribution in the Gulf of Mexico as hurricanes abate. Crude market stories have highlighted analysts’ concerns about declining demand due to ongoing lockdown measures around the world.
In the larger overview, USDCAD has been lower since mid-March, albeit with waning momentum. The global economic recovery from lockdowns, which peaked in April, contributed to this downtrend as the US currency declined as a safe haven unit before negative real US returns became a dominant factor in fueling the greenback’s downtrend . Upside risks to USDCAD included the OPEC + group’s course of easing production quotas, which could weigh on oil prices depending on how it matches the evolution of demand, in addition to the coronavirus pandemic and geopolitical tensions, should they rebound derail the global asset markets. With the US economy recovering and government bond yields rising, the US dollar may also rebound after a protracted weakening phase.
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