Dollar, Yen May Recover on Fed Impact of US-China Trade Talks

The Australian and New Zealand Dollars outperformed in Asia Pacific trade, tracking regional stocks higher. This came after US President Donald Trump opted to postpone a tariff hike on $200 billion in Chinese imports to trigger on March 1, citing positive progress in on-going negotiations.

China’s state-run Xinhua news agency dampened the mood however, saying trade talks may have “new uncertainty” and are likely to become harder in the final stages. The anti-risk Japanese Yen swiftly turned higher, the similarly-minded US Dollar stabilized, and pro-risk commodity bloc currencies stalled.

FED OUTLOOK RETHINK MAY SPOIL US-CHINA OPTIMISM

Tellingly, bellwether S&P 500 futures have also trimmed earlier gains (though they still point higher). That suggests the markets are not as inspired as might have been expected by (at least) a stay of execution on US-China trade war escalation. This may hint that sentiment is more fragile than it appears to be.

The possibility that a US-China trade deal will revive Fed rate hike prospects might be one reason that traders are skittish. The week ahead is loaded with policy-relevant event risk that might show the Fed is not as inherently dovish as previously thought. Waiting for it to pass may cool risk-on conviction in the interim.

ASIA PACIFIC TRADING SESSION

Asia Pacific Trade Economic Calendar