Risk sentiment whipsaws on Trump/China rhetoric, Italy and Brexit

Key Movers

The US dollar index seesawed through trading on Monday. Having initially opened just under the 97.00 mark, geopolitical tensions rose on the back of this week’s planned meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G20 summit in Argentina, where they are expected to meet separately to discuss a possible trade deal. The DXY dropped to 96.66 before a rebound in U.S stocks at the close of the day saw helped it push back to 97.10.

The greenback has strengthened overnight, too. Risk sentiment has taken a mild turn for the worse, this after Trump said he’s unlikely to delay imposing tariffs on imported Chinese goods. Investors have moved back into safer assets and the dollar is stronger against most majors as a result.

There isn’t much by way of top tier US economic data due for release today. CB Consumer Confidence is due at 3pm and FOMC member Bostic is due to speak later this evening.


European equity markets rallied over 1% on the day on Monday, driven largely by a 3% rise in the Italian index, this following conciliatory comments from the Italian government regarding their 2019 budget targets. The government has been warring with the European Commission over their deficit targets for the 2019 budget over the last few months and so news that the Italian government was willing to adjust these targets was welcomed by markets, forcing Italian bond yields sharply lower; the 10-year fell almost 15 basis points on the news. Currency moves on Monday were more constrained as the EUR/USD pair round-tripped from 1.1330 to 1.1380 before giving back most of these gains by the end of the day.


In other news yesterday, ECB President Draghi’s gave some optimistic commentary around Eurozone growth and inflation levels. He mentioned that the economy was still ticking along in line with the central bank’s projections and that they are aiming to end its bond-buying programme by December. However, he did point to the slowdown in recent data as being more pronounced than expected and also noted that uncertainties such as protectionism remain elevated. EUR/USD was steady throughout the session yesterday, and overnight, but its gapped lower this morning by approximately 40 points, dragged lower in part by the early morning sell-off in GBP/USD.


The Australian dollar strengthened yesterday amid a backdrop of reviving risk appetite in global markets, with oil prices and global stocks trading higher through the early part of the week. Overnight, comments from Trump that the US is unlikely to delay implementing tariffs on Chinese goods saw these gains reversed and AUD/USD fell back from .7270 to an overnight low of .7210.

The pair has since retraced a little and opens in London at .7235. Whilst investors will be reluctant to take on too big a position in the lead up to Trump and Xi’s meeting this week, local AUD/USD traders will have half an eye on upcoming construction work data from Australia.


The CAD edged marginally lower on Monday. Risk appetite improved as equities, bond yields and oil all bounced off Friday’s low and helping to prop up the CAD.

The change in risk sentiment, brought on in large part by Trump’s comments on China overnight haven’t helped the commodity currencies, including the loonie and it’s since fallen back against the dollar, with USD/CAD opening in London at 1.3260..


NZD/USD has ghosted other commodity currencies over the last 24 hours, including the AUD/USD pair. It dropped back overnight, to a low of .6750, but has managed a small recovery in early London, and opens at .6785. Local traders will now be looking to the RBNZ Financial Stability Report and two accompanying speeches by RBNZ Governor Orr. Specifically, investors will be keen to understand if and how the Loan-to-Value Ratio restrictions on mortgages is relaxed.