Trade optimism supports dollar vs yen; Fed meet awaited

Reuters HONG KONG | Updated on October 29, 2019

Both the dollar and riskier Asian currencies held on to modest overnight gains on Tuesday, amid hopes for an easing in Sino-US trade tensions and as investors waited for direction from this week's Federal Reserve meeting.

US President Donald Trump said a trade agreement looked to be ahead of schedule on Monday, without detailing the timing, while the US also said it was studying whether to extend tariff suspensions due to expire in December.

That followed remarks late last week from both US and Chinese officials saying they were “close to finalising” a deal that lifted trade-exposed currencies such as the Australian dollar, while weighing on safe-havens such as the Japanese yen.

The mood cautiously held on Tuesday.

The Aussie kept its gains to stand just under a five-day peak at $0.6842, while the greenback held on to its progress against the yen to stand at 108.96 yen per dollar, just below a three-month high hit overnight.

“So far the soundings coming from both the US and China point to the likelihood of significant progress,” said Rodrigo Catril, National Australia Bank's senior FX strategist.

He added, though, that China's demand for a pullback on US tariffs remained unresolved and warned talks could easily fail again if a compromise cannot be reached.

The dollar was steady against the euro at $1.1096 and flat against a basket of currencies at 97.755.

The New Zealand dollar was 0.2 per cent higher at $0.6361. China's yuan, which hit a six-week high in offshore trade on Monday, before retreating, was steady at 7.0617 per dollar.

Beyond the trade headlines, the major focus this week is the Fed meeting.

The US central bank is expected to cut rates for a third time in a row when it concludes its two-day meeting on Wednesday.

Investors are watching for any indication that further cuts are likely, with futures pricing suggesting an expectation for further easing in 2020.

“The forward guidance will be the thing,” said Westpac analyst Imre Speizer in Auckland.

“It still looks like a done deal that they will cut, but then the risk is that they might characterise that as just one more insurance move ... the market will have to take out the pricing it's got for future dates.”

The British pound, meanwhile, nudged lower to $1.2857, with Brexit hanging in the balance.

The European Union has agreed to delay Britain's exit for up to three months, but the country is politically paralysed and overnight parliament rejected Prime Minister Boris Johnson's third attempt to schedule a December 12 election.

Johnson has said he would try again, by a different legislative route that would only require a simple majority, rather than a two-thirds majority.

Published on October 29, 2019

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