The US dollar edges lower on Trump tweets

Trump and Pelosi discuss partial stimulus

The presidential tweetstorm indicating his willingness to sign off on partial stimulus measures saw the US dollar give up some of its gains overnight. The dollar index fell 0.26% to 93.60 overnight, leaving it anchored in the middle of its one-week range.

That allowed for some modest gains amongst the G-10 currency grouping, with both the euro and sterling rising modestly overnight along with the Australian dollar. Notably, the Japanese yen continues to weaken as haven flows abate. USD/JPY has formed a bullish inverse head-and-shoulders pattern, which should see USD/JPY target gains to 107.00 initially but has the potential to run as far as 110.00. Much of that will depend on the US election, though.

Notably, the New Zealand dollar continued to weaken, with the RBNZ still banging the negative interest rate drum loudly. The RBNZ Assistant Governor said that the bank is continuing to work actively on negative interest rates and funding for lending programmes. He expected both inflation and unemployment would be below potential for the next two to three years. The bank’s chief economist reiterated this dovish stance, stating that the central bank would rather do too much stimulus than too little. The NZD/USD has fallen for the last three sessions and is in danger of tracing out a negative head-and-shoulders pattern that would target 0.6200 from 0.6570 this morning. A daily close under 0.6500 would confirm the structure.

Elsewhere, Asian currencies continue to tread water awaiting the return of mainland China tomorrow. Regional currencies have strengthened slightly this morning and continue to consolidate recent gains in the larger picture. Given the strength of the China recovery, we expect regional Asian currencies to outperform developed market currencies over the next month. China’s strong recovery is offsetting nervousness about key export markets in the US and Europe.

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