Dollar Slips, Trade-Related Currencies Rise on Successful U.S.-China Phone Call

The U.S. dollar fell and the Australian dollar and Chinese yuan rose after the United States and China both hailed a phone call between their senior trade officials as a success.

That reaffirmed investors’ faith that even as diplomatic ties between the two countries fray, the trade relationship can endure.

On the call, which had been originally scheduled for Aug. 15, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese Vice Premier Liu He.

The United States said both sides “see progress” and China’s Commerce Ministry called the talks “constructive.”

The news lifted the Australian dollar 0.2% to $0.7171 and nudged the Chinese yuan firmer to 6.9070.

The greenback inched lower versus the euro, by 0.2% to $1.1813, and by 0.2% against the British pound to $1.3088.

The U.S. dollar was only up versus the Japanese yen, last trading at 106.17 yen, 0.2% stronger.

Sentiment, and support for riskier currencies over the dollar, was also boosted by a Financial Times report which said that U.S. authorities were considering fast-tracking approval for a COVID-19 vaccine being developed by AstraZeneca and Oxford University.

Stocks moved further into record territory by FX moves that were contained as markets were not expecting a breakdown of the trade deal and looking ahead to a speech from Federal Reserve Chairman Jerome Powell later in the week, which could shift the U.S. dollar in either direction.

Investors were expecting Powell to sound dovish on Thursday at the Jackson Hole Symposium and might speak to speculation that the central bank could adopt a more accommodative stance on inflation.

“The potential dovish shift in Fed policy should be well priced in by now which should limit further downside potential for the U.S. dollar,” said Lee Hardman, currency analyst at MUFG.

“As the release of the latest FOMC minutes revealed, there is also some upside risk for the U.S. dollar if Chair Powell disappoints dovish market expectations in any way,” he said.

Investors were also looking ahead to Germany’s IFO Business Climate index, and U.S. consumer confidence figures, later in the day, for clues as to the relative performance of the two economies.

Softer-than-forecast data on both continents last week suggests there is downside risk, even though economists polled by Reuters forecast higher IFO numbers and stronger U.S. consumer confidence.

U.S. new homes sales – expected at the same time – are also seen to report more optimistic results.