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Dollar Drops Amid Uncertain Trade Outlook

6/4/2018, 3:42:43 PMBasics of Trading
Dollar Drops Amid Uncertain Trade Outlook

The dollar opened the week sliding in morning trade in Asia Monday but holding on to most of its strength even as confidence in the U.S. economy was boosted by a strong jobs report and the likelihood of another interest rate increase by the U.S. Federal Reserve increased.

In China, the People's Bank of China set the set the reference rate for the yuan against the dollar, the mid-point from which the currency is allowed to trade, at 6.4208 versus the previous day's 6.4078. The USD/CNY pair gained 0.02% to trade at 6.4214.

Investors continue to watch closely the looming trade war the U.S. and China. Talks between the U.S. and China ended on Sunday without any deal announcement and China threatening to void any previous commitments.

A trade war could prompt China to slowly devalue its currency.

In a widely distributed statement, China said that "if the U.S. introduces trade sanctions including raising tariffs, all the economic and trade achievements negotiated by the two parties will be void."

The U.S. dollar index, which tracks the greenback against a basket of six major currencies, shed 0.15% to 94.02 at 10:46PM ET (02:46 GMT).  The dollar index climbed to this year’s high of 94.93 last Wednesday then lost some steam, hovering near the 94 level.

Last Friday evening, U.S. released job data. Nonfarm payroll employment increased by 223,000 in May , while average hourly earnings also rose 0.3% compared to May last year. The unemployment rate fell from 3.9% to 3.8%. The strong data supported the idea that the Fed may raise rates later this month.

The Australian dollar was trading higher after the country reported upbeat economic data that sent the Aussie higher even as investors continued to look for cues from U.S.-China trade relations.

The AUD/USD pair gained 0.42% to trade at 0.7600, breaking the 0.7550 level. On Monday, Australian Retail Sales came in at 0.4%, beating the forecast 0.2%. Company Gross Operating Profits for the first quarter also came in bullish, printing at 5.9% versus the forecast 3.0% and the previous 2.2%.

In Japan, the USD/JPY pair gained 0.06% to 109.60. The upbeat U.S. data supported the dollar against the yen.