The Forex market rallied on Tuesday due to rising optimism about a global recovery from the coronavirus pandemic. As a result, the U.S. dollar fell, but riskier currencies surged forward.
The Australian and New Zealand dollars rose by 0.3%. On Tuesday, the Aussie was steady at $0.6559 along with the kiwi at $0.6112. However, they still remained below last week’s highs.
ANZ analysts noted that, at current levels, the global recovery is in the price. According to them, it’s a question of when, not if, depreciation resumes. While ANZ Bank upgraded its forecasts for the Antipodean currencies, it still expects their decline.
Meanwhile, the Chinese Yuan steadied slightly at 7.1427. However, it’s near the two-month low of 7.1465 it reached on Friday. Some analysts expect the Yuan to plunge again. China’s move to force laws on Hong Kong, along with its handling of the pandemic, may cause further deterioration of the already soured U.S.-China relations.
Markets are caught between two conflicting currents – stated Michael McCarthy, CMC Markets’ chief strategist. Even though easing COVID-19 lockdown measures are fuelling growth optimism, escalating tensions between China and the U.S. are raising concerns.
China’s top diplomat, Wang Yi, criticised U.S. attacks as a “smear”. Earlier Robert O’Brien, White House National Security Adviser, issued warning about potential sanctions if China undermined Hong Kong’s autonomy.
While such statements concern investors, sentiment still improves as restrictions on businesses and movement around the globe are lifting. Traders hope for a swift return to growth.
How did the U.S. dollar fare?
The dollar fell on Tuesday as riskier currencies soared. It changed slightly against a basket of currencies, trading at 99.692. If such a mood continues, the greenback may decline further.
Meanwhile, the Sterling rose by 0.3% to $1.2215, while the euro climbed up by 0.2% to $1.0908. But both of them lost between 4% and 5% on the Brazilian real and Mexican peso last week.
Mexican peso or Brazilian real have the perfect opportunity for outperformance now – noted Chris Weston, head of research at Melbourne brokerage Pepperstone.
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