THE DOLLAR ON DEFENSIVE DUE TO U.S. POLITICS

The dollar on defensive due to U.S. politics

The dollar dropped lower, and commodity currencies jumped higher on Monday as investors soothed by a delay in an audit of the U.S.-China trade contract, which left the deal untouched.

Ambiguity ahead of a week that consists of minutes of the U.S. Federal Reserve’s final policy conference and the U.S. Democratic Party’s nomination convention kept a lid on feeling, with finite steps by midday in London.

Against a basket of currencies, the dollar traded by 0.1% lower at 92.982, in the middle of the lenght it has held since falling to a two-year low at the end of the July.

The risk-sensitive Australian dollar jumped up to a week high of $0.7196, nudging around the top end of a channel it has traded in for a week. The oil-sensitive Canadian dollar also jumped 0.3% higher to C$1.3224 per bank note.

The United States and China delayed a Saturday audit of their Phase 1 trade arrangement, people acquainted with the plans explained Reuters, citing scheduling animosity.

The euro traded above by 0.1% against the dollar at $1.1850.

Dollar against Euro, what do the analysts say?

Analysts point to widen long positioning on the euro, U.S. politics as a presidential election looms, and new coronavirus hotspots in Europe as factors that could challenge the euro’s uptrend.

“Positioning remains stretched on longs, making the cross vulnerable to a turn in sentiment, which has for a while been that of the EU handling the COVID shock better than the U.S.; this may change as U.S. figures peak, and Europe fights the second wave,” said Arne Lohmann Rasmussen, Chief Analyst, Head of Cross-Scandi Research at Danske Bank, in a note to clients.

Danske sees the euro/dollar rate hitting $1.16 a month from now, he added.

Markets are also looking to the Fed minutes from last month’s meeting, due to be released on Wednesday, for any clues about an anticipated shift in the policy outlook.

Speculation is rife the U.S. central bank will adopt an average inflation target, which would seek to push inflation above 2% for some time to make up for the years it has run below.

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