China rally fuels global risk-on sentiment, dollar lower

The dollar is lower across the board amid a powerful risk-on rally in global markets triggered by a jump in both Chinese equities and the Chinese yuan. The Shanghai Index soared by 5.7%, the biggest daily rise since 2015, following an article in China hyping the benefits of a strong equity market. The Chinese yuan gained 0.65% to 7.02, its best level against the dollar since March. The dollar index is lower by 0.5%. Oil is little changed, but copper and other commodities are near 5-month highs. UK/EU trade talks struggle forward.

Monday: US Institute for Supply Management (June)

Tuesday: Reserve Bank of Australia announces monetary policy decision, US Job Openings and Labor Turnover Survey (May)

Wednesday: US Consumer Credit (May)

Thursday: US Initial Jobless Claims for week ending July 4

Friday: US Producer Price Index (June), Singapore General Election

  • FX Rates
    July 6, 2020

    Rates are not real time. Rates are today's indicative mid-market rates as of time of publishing, which may vary. Please contact SVB for a current quote.


  • USD

    The dollar dropped, as it typically does in a risk-on market rally. Traders reacted quickly to the strong setting by the PBOC of the USD/CNY rate, buying foreign currencies across the board against the dollar. US equities are opening the day up nearly 1.5%. US Treasury yields are higher by 3 bps to 0.70%.

    GBP

    UK Prime Minister Boris Johnson and EU President von der Leyen have arranged to hasten trade talks, but according to EU chief negotiator Bernier, they remain with “serious divergences.” Also, the Bank of England put out a warning to its banks to be ready in case a negative benchmark interest rate is adopted. Mid-week, the UK government may announce new fiscal stimulative measures.  

    EUR

    The euro is up nearly 0.7%, its biggest gain in two weeks, amid broad dollar weakness and good German factory orders. There is a growing sense that the eurozone economy is recovering. There seemed little reaction to French President Macron’s replacement of his prime minister, as it is normal to do so to mark the start of new government strategy.

    CAD

    The Canadian dollar has barely moved, despite the market’s broad move against the US dollar. China denounced Canada’s postponement of its extradition treaty with Hong Kong, calling it a “serious violation” of international law and a “flagrant interference” in its domestic affairs.

    ASIA/PACIFIC

    Global markets are beginning the week in a risk-on mode following a powerful rally in the Chinese equities and the yuan. A front page article in China’s Securities Times, an influential state media, triggered risk-on sentiment, saying that “fostering a healthy bull market after the pandemic is now more important to the economy that ever.” The Chinese yuan soared to a three-month high, as it trades near 7.02 from Friday’s 7.0665.

    Singapore holds its general election on Friday.

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Scott Petruska, CFA
WRITTEN BY
Scott Petruska, CFA

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