Dollar edges lower as markets eye US politics, Fed minutes

London

THE dollar edged lower and commodity currencies inched higher on Monday as investors were relieved by a delay in a review of the US-China trade pact which left the deal intact.

Uncertainty ahead of a week that includes minutes of the US Federal Reserve's last policy meeting and the US Democratic Party's nomination convention kept a lid on sentiment, with limited moves by midday in London.

Against a basket of currencies the dollar traded 0.1 per cent lower at 92.982, roughly in the middle of the range it has held since dropping to a two-year low in late July.

The risk-sensitive Australian dollar inched up to a week high of US$0.7196, poking around the top end of a channel it has traded in for a week. The oil-sensitive Canadian dollar also edged 0.3 per cent higher to C$1.3224 per greenback.

The United States and China postponed a Saturday review of their Phase 1 trade deal, people familiar with the plans told Reuters, citing scheduling conflicts.

The euro traded higher by 0.1 per cent against the dollar at US$1.1850.

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 US central bank will adopt an average inflation target, which would seek to push inflation above 2 per cent for some time to make up for the years it has run below.

"The outlook for the dollar will likely be driven by the US bond market this week," said Viraj Patel, global FX and macro strategist at Arkera.

The yield on benchmark 10-year US debt rose almost 15 basis points last week, its sharpest weekly rise in two months, which weighed on the yen by attracting investment from Japan. US 10-year yields slipped to 0.6882 per cent on Monday, while the yen was a tad firmer at 106.51 per dollar.

Data releases across Asia on Monday painted a bleak picture, with currency investors unmoved by a couple of bright spots.

Japan was hit by its biggest economic contraction on record in the second quarter and Thailand suffered its worst quarter in 22 years as the coronavirus battered exports and activity.

Thailand's contraction was a little better than market expectations, but that failed to lift the baht.

Anticipation of the Reserve Bank of New Zealand taking rates negative next year is weighing on the kiwi.

New Zealand delayed a general election by a month on Monday as it grapples with a new outbreak of the coronavirus in Auckland.

The kiwi dipped 0.1 per cent on the dollar to US$0.6531. REUTERS