Dollar Pushes Higher But Gains Checked, Aussie Weaker
The U.S. dollar pushed higher against a basket of its rivals on Thursday but gains were held in check amid concerns over global growth, the U.S. government shutdown and the ongoing U.S.-China trade war.
"Trade tensions are the most dominant factor for investor sentiment right now and will drive market flows," said Nick Twidale, chief operating officer at Rakuten Securities.
Twidale added that investor risk appetite will only improve once concerns over the partial U.S. government shutdown and trade tensions fade.
Global growth concerns have also spooked investors. On Monday, the International Monetary Fund cut its 2019 and 2020 global growth forecasts, citing a bigger-than-expected slowdown in China and the euro zone, and said failure to resolve trade tensions could further destabilize a slowing global economy.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up 0.12% to 95.88 by 03:05 AM ET (08:05 AM GMT).
Markets are bearish on the outlook for the dollar this year. Worries over the global economic outlook have forced the U.S. Federal Reserve to take a cautious approach on any further interest rate increases. Traders in interest rate futures are wagering that the Federal Reserve will stand pat on rates in 2019.
The Australian dollar was lower, with AUD/USD losing 0.6% to trade at 0.7097.
The Aussie was pressured lower after National Australia Bank dealt a fresh blow to the country's rapidly-cooling housing market as it joined its peers in hiking mortgage rates, stoking talk of an interest rate cut. Earlier, the Aussie was in positive terrain on the back of solid jobs data.
The yen was a touch lower against the dollar, with USD/JPY inching up 0.09% to 109.68.
The euro was marginally lower, with EUR/USD at 1.1373.
Traders expected the European Central Bank to remain dovish at its policy meeting later in the day and to keep monetary policy accommodative for an extended period of time.
Low inflation as well as weaker-than-expected economic activity in Germany and France, however, may lead ECB President Mario Draghi to point toward a potentially longer lasting slowdown.
"If the central bank lowers its growth or inflation forecasts and Draghi focuses on weaker growth, we could see EUR/USD fall to $1.12 easily," said Kathy Lien, managing director of currency strategy at BK Asset Management.
The pound was lower, with GBP/USD down 0.21% to 1.3038 as uncertainty over Brexit continued.
Since Prime Minister Theresa May's divorce deal with the EU was rejected by lawmakers last week in the biggest defeat in modern British history, lawmakers have been trying to plot a course out of the crisis, yet no option has the majority support of parliament.
Some analysts expect limited upside for sterling. Philip Wee, currency strategist at DBS says that most of the gains in the pound are due to the unwinding of short positions. He sees sterling capped in the range of $1.3170-1.3240.