Dollar Picks Up Ahead of G20 Summit
The dollar bounced back slightly on Friday morning in Asia, ahead of the G20 summit that kick off later in the day. U.S. President Donald Trump and his Chinese counterpart Xi Jinping are expected to discuss trade.
The U.S. dollar index, which tracks the greenback against a basket of six major currencies, was up 0.01% to 96.685 at 10:36PM ET (02:36 GMT).
Trade is in focus for currency traders ahead of the G20 summit in Argentina, where Trump and Xi are expected to meet. Trump, however, told the Wall Street Journal earlier this week that the current tariff levels on $200 billion of Chinese products will be kept and rise from 10% to 25%. He threatened to slap further levies on a remaining $267 billion of Chinese exports to the U.S.
Interest rates were also in focus. Minutes of the U.S. Federal Reserve’s meeting earlier this month, released on Thursday, showed that an interest rate hike is in the offing but did not set a clear timeline for any policy shifts. The Fed is widely expected to hike rates in December, according to various reports.
This comes after Fed’s Chairman Jerome Powell made some dovish comments on Wednesday. He said the current level of interest rates is “just below” neutral, which investors read as a sign that the pace of further hikes might be slower.
The USD/CNY remained flat at 6.9431, while the USD/JPY pair dropped 0.11% to 113.36.
A slowdown in the rate of interest rate hikes could give other currencies, hammered by a strong dollar, some breathing space. The dollar has been getting stronger against the Chinese yuan, for example.
Some expect the Chinese renminbi to break past the CNY7 market against the dollar. It would be the first time in a decade. Speaking to Bloomberg, BNY Mellon Investment Management Chief Economist Shamik Dhar said that as trade tensions intensify, the “pressure on the renminbi to fall continues”. The CNY is down around 10% from its peak for the year.
But others are less bullish about the dollar.
Investment bank Morgan Stanley (NYSE:MS) is far from optimistic about the future of the dollar. Hans Redeker, Morgan Stanley’s global head of FX strategy, told CNBC that the dollar is set to depreciate next year, and the U.S. economic growth will slow. The Fed is expected to stop hiking rates in mid-2019, pulling down the dollar.
“When you create debt, you need to find somebody to buy it. And that means you need to look into the global availability of capital and…global availability of capital is in sharp decline,” Redeker said.
“If we see a truce, the Aussie and kiwi dollar will perform exceptionally well. We see a lot of upside in crosses such as Aussie/yen which would benefit from a risk on move. If tariffs on Chinese imports stay at 10%, the dollar is likely to weaken in a risk-on move,” Nick Twidale, chief operation officer at Rakuten Securities, told Reuters.
Down under, AUD/USD edged up 0.04% and the NZD/USD pair also went up 0.12%. The USD/JPY lost 0.07% to JPY113.39.