US dollar rebounds from monthly low as China adds strength to risk-off mood

Fears of global economic slowdown escalated on early Tuesday amid fears of US restrictions to tame China chip producers. Also contributing to the risk-aversion could be fears of further Sino-American tussles and Chinese policymakers’ lack of confidence in this year’s GDP growth forecasts.

Sour sentiment renewed US dollar buying after dragging the greenback to the fresh monthly low on downbeat yields.

As a result, AUDUSD portrayed a risk-off mood while ignoring the RBA’s four rate hikes while the NZDUSD and USDJPY were also holding lower grounds. Further, gold retreats from one-month high and Brent oil prices stretch the previous day’s fall towards refreshing the weekly low.

Additionally, BTCUSD and ETHUSD brace for the biggest daily loss in a week as the crypto market’s fears join the US dollar rebound, as well as downbeat equities.

Following are the latest moves of the key assets:

• Brent oil remains pressured around $103.50, down 0.40% intraday after declining the most in three weeks the previous day.
• Gold reverses from one-month high but bears struggle near $1,770.
• USD Index bounces off monthly low as it snaps four-day downtrend, up 0.20% on a day near 105.60 at the latest.
• FTSE 100 remains mildly bid but the Eurostoxx and DAX both print losses.
• Wall Street paused the profit-making rally as the key benchmarks dropped on Monday, led by S&P500’s 0.28% daily loss.
• BTCUSD drops 1.6% to revisit the sub-$23,000 region after more than a week whereas the ETHUSD declines 2.5% as sellers attack $1,600 mark.

Market fears recall USD bulls

Having started the week on a negative note, as well as refreshing the monthly low earlier in Asia, the USD index braces for the first daily positive in five as traders fear economic slowdown. Also contributing to the greenback’s safe-haven demand are the concerns the US and China will again be at loggerheads and add a burden on the market’s recovery.

US House Speaker Nancy Pelosi’s Taiwan visit, despite China’s warnings, joined the American push towards restricting the supplies of chip-making machines to China to gain major attention among risk-averse catalysts. Also, policymakers from Beijing aren’t confident in their GDP forecasts and exerted more pressure on the conditions.

Elsewhere, more than a two-decade low US ISM Manufacturing PMI and talks of further strains on the global supply chain joined the pre-NFP anxiety to weigh on the sentiment.

In addition to the risk-aversion, the RBA’s failure to convince bulls with a 0.50% rate hike also weighed on the AUDUSD prices. The reason could be linked to the Rate Statement that lacks guaranteed rate hikes in future meetings.

It should be noted that the gold retreats from the monthly top and prices of oil also drop amid firmer USD, as well as the recession fears. On the contrary, the Japanese yen remains firmer versus the greenback due to downbeat Treasury yields and also due to its traditional safe-haven status.

BTCUSD and ETHUSD also couldn’t ignore the firmer US dollar and offbeat sentiment while bracing for the five-day downtrend.

⏫ 🟢 Strong buy: USDJPY

⏬ 🔴 Strong sell: ETHUSD

⬆️ 🟢 Buy: USD Index, USDCAD, Nasdaq

⬇️ 🔴 Sell: DAX, FTSE 100, gold, BTCUSD

Fed speakers will be important

Although this week is about recession and China, not to forget the US NFP and PMI, several Fed speakers are lined up for public appearances and they will gain attention considering the latest shift in Fed Chair Jerome Powell’s tone. Hence, comments suggesting no threats to the rate increase could add strength to the US dollar’s recovery moves amid a light calendar at home.

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