U.S. retail sales drop as China calls Biden an old friend

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U.S. retail sales drop as China calls Biden an old friend

The dollar was softer against riskier currencies and traders waited for looming U.S. retail sales data to guide the inflation outlook, as the yuan hits 5 month peak, AUD, NZD make small gains from 16 month trough U.S retail sales data. The euro was slipping off a 16 month low and rose almost 0.2% to $1.1383 on Monday amid concerns about COVID 19 outbreaks and the pushback on rate hike expectations from Europe's central bank chief. China's counterpart Xi Jinping called U.S. President Joe Biden an old friend, but he said their countries must increase communication and cooperation. Both leaders stressed their responsibility to avoid conflict in opening remarks. The yuan had climbed to its highest since June in onshore trade at 6.3666 per dollar by the halfway point in talks. The risk-sensitive Australian and New Zealand dollars rose by about 0.2% each, while the safe haven yen eased a bit. Xi called Biden my old friend and said that the two countries should work together, said Qi Gao, Asia FX strategist at Scotiabank. The situation after the meeting should be better, he said, helping the yuan and other currencies, which are sensitive to the tone of U.S.-China ties. The Aussie shrugs off more jawboning from central bank head Philip Lowe who again pushed back market pricing for hikes as soon as 2022, arguing that inflation was likely to be well behind the spikes seen elsewhere. The Aussie traded just above its 50 day moving average of $0.7368. Swaps markets are priced for 100 basis points of hikes by early 2023. The kiwi, which is awaiting a central bank meeting in New Zealand next week, was up to $0.7060 with the broadly positive mood in Asia. The yen fell slightly against the euro and the dollar, last trading at 114.16 yen per dollar and 129.95 yen per euro. The S. retail sales data is due at 1330 GMT and follows a surprisingly weak consumer sentiment reading last week and a unexpectedly strong business conditions survey that helped lift Treasury yields on Monday. Economists expect a month-on-month growth to be accelerated to 1.2% and a surprise on the upside to highlight the contrast across the Atlantic where European Central Bank head Christine Lagarde has emphasised the economy's fragility. The common currency fell to a 16 month low of $1.1356 after her comments pushing back on market expectations of tightening and lacks chart support until around $1.12. The U.S. dollar index was at a new 2021 high of 95.595 because of the drop. "We expect the cautiousness of the ECB on policy to limit the recovery prospects for the euro against the dollar in the coming months," said Jane Foley, senior FX strategist at Rabobank. Our current mid- 2022 forecast of EURUSD at $1.14 is outdated and we will revise our forecast later in the week. The euro fell to its lowest level against the pound in six months on Monday as Bank of England Governor Andrew Bailey told a parliamentary committee he was very uneasy about inflation. The pound was stable at 84.71 pence per euro and a bit stronger on the dollar at $1.3433 on Monday. Canada's central bank chief Tiff Macklem said we're getting closer to hikes in an opinion piece, driving the Canadian dollar to a four-and-a-half year high against the euro. It fell 5% to $4,320 after a 10 day trough of $60,700 and fellow cyptocurrency ether fell to a 4% drop from last week's all-time high.