Dollar holds near recent highs on trade jitters

Has your bank passed the rate cut on? Source Getty

Has your bank passed the rate cut on? Source GettyMore

The dollar found broad support on Monday as global political uncertainty and fears over a widening of the Sino-U.S trade war kept investors in safe harbours ahead of a slew of global economic indicators this week. The dollar earlier this month hit a more than two-year high of 99.37. The US dollar strength came at a time when the kiwi was already under pressure from yesterday's weak business confidence reading in spite of the Reserve Bank's efforts to revive investment by cutting the official cash rate to 1 per cent.

A host of economic data and comments from central bankers this week will set the tone for major currencies as traders try to determine how far policymakers go to bolster growth.

"If we look at some of the data out of either Asia Pacific or the European zone, the USA economic data has certainly been the stand-out across the board", said Art Hogan, chief market strategist at National Securities in NY.

Perhaps most important however is that the RBA left the doors open for further rate cuts down the road.

The yen remained weak after the Bank of Japan's tankan showed business confidence in the third quarter slid to its lowest in six years. "It's all due to the trade war", said Peter Cardillo, chief market economist at Spartan Capital Securities in NY.

The Institute for Supply Management's measure of United States manufacturing activity due later today is forecast to show a return to expansion in September, but just barely.

German inflation, British economic progress, and USA manufacturing signs are all due later Monday, with US employment figures at the end of the week.

The Fed has cut interest rates twice this year, but there are signs that the Fed is reluctant to ease policy further because the jobs market remains strong.

The Pound to Australian Dollar (GBP/AUD) exchange rate is trending in the region of 1.8259, approx 0.50% higher.

Annual inflation in Germany, Europe's largest economy, slowed to the lowest in nearly three years, data on Monday showed.

The European Central Bank unleashed a new round of monetary easing measures on September 12, but there is growing concern that the central bank is reaching the limits of what it can achieve and the burden will fall to eurozone governments to boost fiscal spending.

A favorable interest rate differential driven by improving U.S. economic data and the increasing chances the Fed may pass on an October rate cut also made the U.S. Dollar a more attractive asset. However, the Aussie surrendered those gains to trade down 0.21% at $0.6742 AUD=D3 .

Last week, Fed Vice Chair Richard Clarida said USA inflation expectations are now in line with the central bank's 2% goal, and indication that he does not see a pressing need for new rate cuts to boost inflation. The downward trend in new orders - which fell the most in more than ten years - is a particular worry, and continues drive cutbacks in factory output, employment and prices.

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