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  • Forex today was picking up the Asian session bargains on the consensus that trade talks will indeed go ahead and a deal will be struck, eventually, between the US and China, despite the weekend antagonistic tweets made by Trump which the market took as a pinch of salt.  

Markets got a bit of reprieve overnight on news that China’s Liu would travel to Washington this week for negotiations. There were major paring backs in the FX and commodity markets and U.S. benchmark recovered the majority of their opening sell-offs by the close of play. The greenback was indeed unchanged on the day while the US 10yr treasury yield rose from the 5bp lower open at 2.48% by 2bp to  2.50% while  the 2yr yield opened 4bp lower at 2.28% and moved up to 2.31%.  

Currency action:

Analysts at Westpac summarised as follows:

  • EUR rose slightly from 1.1180 to 1.1210 and then gave much of this back late in the day.
  • The safe-haven yen underperformed, as USD/JPY rose from 110.60 to 110.96, though Lighthizer comments saw the ¥ bounce back and USD/JPY back to 110.60.
  • AUD rose from yesterday’s 0.6963 low (also a three-year low excluding Jan’s flash crash) to 0.7003 before sliding back to 0.6985.
  • Underperformer NZD slipped from 0.6630 to 0.6603. AUD/NZD rose from 1.0545 to 1.0594.

Key notes from US session:

  • Wall Street closed in the red but benchmarks made impressive recoveries

  • Update to trade wars: China still plans to move forward with talks – South China Morning Post

Key events ahead:

Australia’s retail sales and international trade are on tap  at 11:30am Syd/9:30am Sing/HK ahead of the RBA later in the shift which is  the first since August 2016 and markets are pricing it in as a live meeting. Some analysts are expecting a rate cut from  1.5% to 1.25%.  

“We expect the RBA to cut the cash rate by 25bps to 1.25%. Q1 saw a worrying fall in core inflation. Unemployment needs to come down further just to keep inflation from falling, while the hurdle to push inflation higher is increasingly tough. In terms of the forecast numbers, ANZ thinks the RBA will have core inflation at 1 ¾% by end of 2019, rising to 2% at the end of 2020. GDP growth for 2019 is expected,”

Analysts at ANZ Bank explained.