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Analysts at TD Securities explained that the USD saw broad declines against G10 FX, with AUD (+0.8%) leading the rally after the Trump Administration proposed another round of trade talks with China that could stave off a $200bn round of tariffs if successful.

Key Quotes:

“CAD (+0.5%) benefitted from speculation that we are getting closer to a NAFTA deal even though Canadian sources downplayed the likelihood of an imminent deal. Meanwhile, GBP (+0.2%) and EUR (+0.1%) were relatively muted ahead of tomorrow’s dual central bank meetings.”

“Fixed income and equities (SPX: +0.1%, TSX: -0.2%) were quiet with the Treasury curve modestly flatter on a 1bp move from 10s onwards while Canadian rates were little changed.
Australian employment, the BoE, and ECB are the main risk events for Thursday.

What we’re watching in markets

“Price action pinball persists, leaving the majors in well-contained but choppy ranges. Hopes of a rate hike in Turkey have lent a hand to EMFX, especially as USDCNH holds below 7.0. The anticipation of Hurricane Florence has influenced markets with oil prices spiking in part on concerns of possible supply disruptions.”

“We note the contraction in the BTP risk premium, reflecting the efforts of Italian officials to calm fears regarding next year’s budget. EURUSD HFFV sits around 1.18, implying a roughly 2-sigma discount. We like buying into dips near the lows of 1.1550.”

“Governor Brainard’s speech had little impact on Treasuries even with a noticeably hawkish tilt in our view. Brainard repeated her call to hike beyond neutral and did not overemphasize more downbeat global developments, both of which should support future Fed hikes in light of a market that is underpricing the dots.”

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