US-China Spat Stays in Spotlight, AUD Traders Increase June-Cut Bets

EU and US indices closed negative yesterday, with the driver being once again concerns that the US-China trade spat may escalate further. That said, sentiment improved somewhat during the Asian trading today, perhaps as the US eased temporarily the restrictions imposed on Huawei. With regards to the currencies, the Aussie was the main loser, tumbling after the minutes of the latest RBA meeting, as well as RBA Governor Philip Lowe, prompted market participants to increase bets with regards to a June rate cut.

US-China Trade Tensions Weigh on EU and US Equities

The dollar traded higher or unchanged against the other G10 currencies yesterday and during the Asian morning Tuesday. It gained the most versus AUD, NZD and SEK, while traded virtually unchanged against CAD and JPY. The currencies against which the greenback lost some ground were CHF and EUR.

The weakening of the risk-linked currencies Aussie and Kiwi and the strengthening of the safe-haven franc suggest a risk-off trading environment. Indeed, major EU and US indices were a sea of red yesterday. However, Asian indices came off their lows, with most of them closing in positive territory. Japan’s Nikkei 225 was 0.19% down, but China’s Shanghai Composite gained 1.23%.

Once again, the driver behind the subdued investor morale during the EU and US sessions yesterday may have been concerns that the US-China trade spat is likely to escalate further. Following the US government’s decision to blacklist Huawei, Google suspended some businesses with the Chinese technology firm, while China has accused the US of having “extravagant expectations” over a trade accord that will end their conflict. Sentiment improved somewhat during the Asian trading today, perhaps as the US eased temporarily the restrictions imposed on Huawei. Washington said that it will allow the firm to continue buying US goods until August 19 th, in order to maintain existing networks and provide updates to existing handsets.