Dollar slips on Powell views; optimism on trade talks aids Australian dollar

SINGAPORE: The dollar slipped against peers yesterday, as traders placed bearish bets due to rising expectations that the Federal Reserve would put its policy tightening on pause in 2019.

Risk appetites were strong in Asian trade, thanks to China’s aggressive monetary easing on Friday to address a sharp economic slowdown and to hopes that Washington and Beijing can strike a comprehensive trade deal.

The euro advanced 0.22 per cent versus the dollar while the Australian dollar, often considered a barometer of global risk appetite, rose 0.2 pct and touched its highest level since Dec 20.

Against the yen, the greenback fell 0.41 per cent, fetching 108.09.

“The newsf low we have seen since Friday has lifted sentiment,” said Michael McCarthy, chief markets strategist at CMC Markets in Sydney. “The market certainly liked what ( Fed Chair Jerome) Powell said on Friday and the reaction has been negative for the dollar.”

McCarthy also said China’s cuts in bank reserve requirements “are very important and have lifted commodities... this should be supportive for the Australian dollar.”

On Friday, Powell told the American Economic Association that the Fed is not on a preset path of interest rate hikes and that it will be sensitive to the downside risks markets are pricing in.

Despite Friday’s stronger than expected US December jobs data, many analysts believe the world’s largest economy is losing momentum and further rate hikes are the last thing it needs.

Powell’s comments that the central bank is “prepared to shift the stance of policy” boosted investor sentiment and sent US stocks soaring on Friday.

The dollar outperformed other currencies in 2018 due to the Fed being the only major central bank to hike rates. — Reuters