Hopes of recovery and the dollar

The optimist and pessimistic US dollar news have offset each other and led the greenback to be bound in a narrow range. On the positive side, investors are expecting upcoming US services data to show that the contraction in the services sector has halted. There is also hope coming from the fact that parts of the economy are gradually opening up again from lockdowns.

On the negative side, however, virus cases in the US are rising again. The US Dollar Index Futures has slid from 97.25 to 96.86. Data from Germany is expected to show a strong rebound in retail sales as well as corporate activity. The EUR/USD rate has been range-bound between 1.12 and 1.13 for the past week. The USD/JPY rate has also been range-bound between 107.35 and 107.69 for the past few days.

According to Masafumi Yamamoto of Mizuho Securities, “When it comes to dollar/yen, recovery expectations are supporting the dollar, but worries about the virus are capping the upside.” The yen, in fact, fell against most major currencies as rising Asian share prices have boosted risk-on trades. Chinese share prices, in particular, have touched a 5-year high. The diplomatic and military tensions between China, US, and other countries do not seem to be affecting investor sentiments.

Meanwhile, the Australian dollar has been strengthening against the US dollar as copper prices have been on a rise. The USD/AUD exchange rate has dropped from 1.46 to 1.43 during the past week. All eyes will now be on the outcome of the Reserve Bank of Australia’s policy meeting scheduled for Tuesday 7th July 2020.

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