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Dollar Edges Higher over German Data 

The dollar gained in early European forex trading on Tuesday, reversing earlier losses. Traders sided with the safe haven as the recovery in German industrial production was less impressive than expected in May.

At 3:10 AM ET (0710 GMT), the dollar index was up 0.2% at 96.896.

EUR/USD fell 0.2% at 1.1290, GBP/USD also fell 0.1% to 1.2477. USD/JPY gained 0.2% at 107.54.

Germany’s industrial production rebounded in May. It rose by 7.8% on the month after falling by a revised 17.5% in April. However, this recovery was more modest in comparison to the 10% rise widely expected.

Despite the recovery, production is still well below the levels recorded before the pandemic. The output in May was down 19% in calendar- and season-adjusted terms. This is in comparison to February, the month before lockdown measures were imposed.

Also adding to the demand for the safe-haven greenback has been the ever-increasing number of Covid-19 cases. Over 11.5 million cases have been reported globally as of July 7, according to Johns Hopkins University data.

The dollar had fallen sharply on Monday as more positive U.S. services data strengthened investor expectations for faster economic recovery.

Federal Reserve speakers are due to talk later on Tuesday, including Raphael Bostic, Mary Daly and Thomas Barkin. The FX market will pick up on comments with respect to the Fed’s plans for QE and forward guidance.

 

The Australian Dollar

AUD/USD fell by 0.4% to 0.6943, after Australia’s second-most populous state reimposed a six-week lockdown across metropolitan Melbourne. Authorities scramble to prevent a second wave of coronavirus infections spreading across the country.

As expected, the Reserve Bank of Australia held its cash rate at 0.25%. It made no changes to policy at Tuesday’s board meeting.

They expect the RBA to reiterate that the Australian economy is performing better than feared. This was a statement from Commonwealth Bank of Australia analyst Joe Capurso. Any move higher in the cash rate is some years away, he added.

Capurso also said that the main downside risks for AUD/USD are an escalation in the U.S.-China tensions. Moreover, the risk of partial lockdowns also becomes more widespread.

Meanwhile, forex news reports USD/CNY was up 0.1% to 7.0207, with the dollar rebounding. This was after the yuan hit its highest level in nearly four months. This was also after the sharp gains seen in the Chinese share markets.

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