The U.S. dollar fell, and the Australian dollar and Chinese yuan rose after the United States and China both hailed a phone call between their senior officials as a success. This reaffirmed investors’ belief that even if diplomatic ties between the two countries violate, the trade relationship can endure.
On the call originally scheduled for August. 15, US Trade Representative Robert Lighthizer and Finance Minister Steven Mnuchin spoke with Chinese Deputy Prime Minister Liu He. The United States said both sides “see progress” and the Chinese Ministry of Commerce called the talks “constructive”.
The news lifted the Australian dollar 0.2% to $ 0.7171 and pushed the Chinese yuan firmer to 6.9070. Greenback was lower than the euro by 0.2% to $ 1.1813 and by 0.2% against the British pound to $ 1.3088.
The US dollar was only up against the Japanese yen, last trading at 106.17 yen, 0.2% stronger. Emotions and support for more risky currencies over the dollar were also bolstered by a report by the Financial Times, which said U.S. authorities were considering rapid-tracking approval of a COVID-19 vaccine developed by AstraZeneca and Oxford University.
Shares moved further into record territory using exchange rate movements were contained as markets did not expect a split in the trade agreement and looked forward to a speech by Federal Reserve Chairman Jerome Powell later this week that could move the US dollar in both directions . Investors expected that on Thursday he would sound uncomfortable at the Jackson Hole symposium and perhaps talk about speculation that the central bank could take a more accommodating stance on inflation.
“The potential informal shift in Fed policy must now be priced, which should further limit the potential disadvantage of the US dollar,” said Lee Hardman, currency analyst at MUFG. “As the release of the latest FOMC minutes revealed, there is also some upward risk to the US dollar if President Powells deters stupid market expectations, by any means,” he said.
Investors also looked ahead to Germany’s IFO Business Climate Index, which is due at. 0800 GMT, and US consumer confidence figures at. 1400 GMT for the clue as to the relative performance of the two economies. Softer-than-expected data on both continents last week suggests a downward risk, although economists polled by Reuters predict higher IFO numbers and stronger US consumer confidence.
US sales of new homes – expected at the same time – are also seen to report more optimistic results.