US dollar holds steady on currency markets

US dollar retains gains after strong US job numbers

Currency markets had a relatively directionless session on Friday, with the US dollar holding onto its corrective gains after US yields spiked after the US employment data. The dollar index rose just 0.20% to 92.97, while the lack of negative fallout in Asian equity markets today has seen it edge 0.10% lower to 92.87 this morning.

The USD/CNY has edged lower to 6.8410 after the trade data, while the EUR/USD, GBP/USD, USD/JPY and AUD/USD remain ensconced mid-range. The New Zealand dollar has edged 0.20% lower to 0.6710 after another New Zealand bank said that the RBNZ could cut rates to negative next year.

The prolonged trade war between the United States and China has risen in temperature, after reports that the US was considering export bans on components for Chinese chipmaker SMIC. Threats of the prohibition on Tencent’s WeChat app continuing to rumble in the background. Although SMIC’s stock has fallen 15% in Hong Kong this morning, the fallout has been relatively contained. The financial markets appear to be adjusting to the constant US and China tit-for-tat moves and sanctions as the new normal and getting on with life despite it.

If Friday’s spike in US yields retains some longevity, the US dollar could continue to grind out heavy short positioning over the next few days. Thursday’s ECB meeting will assume greater prominence, with the single currency having led the US dollar rout in previous months. Comments about the level of the euro by the ECB could extend the correction to the 1.1500/1.1600 regions, and that will almost certainly see pro-cyclical G-10 and regional Asian currencies extend declines as well. In the bigger picture, though, the recent price action is corrective, with the bearish fundamentals for a lower US dollar still firmly in place.

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