Forex
Asia FX gains some ground as dollar retreats; China weakness persists
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![Asia FX gains some ground as dollar retreats; China weakness persists](https://i-invdn-com.investing.com/news/LYNXMPEE01050_L.jpg)
© Reuters.
Investing.com– Most Asian currencies advanced slightly on Thursday as the dollar and Treasury yields pulled further away from recent peaks, although persistent signs of deflation in China kept sentiment subdued.
Markets were now awaiting more cues on U.S. interest rates after largely dialing back expectations for early rate cuts by the Federal Reserve, following a string of robust economic readings and hawkish comments from Fed officials.
This trend largely curbed a rally in the dollar, with the greenback pulling back further from a three-month high hit earlier this week. U.S. Treasury yields also retreated from recent highs.
The and fell 0.1% each in Asian trade, extending sharp overnight declines. for January, due next week, is now in focus for more cues on the path of interest rates.
Most Asian currencies crept higher. The was among the better performers for the day, rising 0.1% and extending gains from earlier this week after the warned that it could still hike interest rates in the face of sticky inflation.
The firmed 0.1%, moving further away from near record-low levels as traders awaited a meeting later in the day. The RBI is widely expected to keep rates on hold, while its forecasts on inflation and economic growth will be in close focus.
The fell 0.1% and remained in sight of a two-month low, amid persistent uncertainty over when the Bank of Japan will begin scaling back its ultra-loose policy.
The and moved little.
The slid 0.5% after a Bank of Thailand official said that the bank stood ready to cut interest rates if private consumption slowed further in the country.
Any major gains in Asian units were largely held back by concerns over higher-for-longer U.S. interest rates, as a chorus of Fed officials warned this week that the bank was not considering any monetary loosening in the near-term.
Signs of persistent economic weakness in China also dented sentiment towards the region, as Asia’s largest economy continued to grapple with disinflation.
Yuan weak as Chinese inflation data underwhelms
The moved little on Thursday, amid continued support from the People’s Bank of China, which was seen intervening in currency markets earlier this month. But the weakened past the 7.2 level against the dollar, and remained close to a 2-1/2 month low.
Official data showed grew less than expected in January, while contracted for a sixteenth consecutive month.
The also clocked its worst monthly decline since late-2009, indicating that discretionary spending in the country remained largely subdued amid worsening economic conditions.
However, analysts at ING said January’s inflation data marked a bottom for the current deflation cycle, and that inflation was likely to pick up in the coming months.
Demand was also likely to be supported in February by the upcoming Lunar New Year holiday. Chinese markets will be closed for a week starting from this Friday.
Forex
Major Russian lenders say yuan coffers empty, urge central bank action
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By Elena Fabrichnaya
MOSCOW (Reuters) – Major Russian banks have called on the central bank to take action to counter a yuan liquidity deficit, which has led to the rouble tumbling to its lowest level since April against the Chinese currency and driven yuan swap rates into triple digits.
The rouble fell by almost 5% against the yuan on Sept. 4 on the Moscow Stock Exchange (MOEX) after the finance ministry’s plans for forex interventions implied that the central bank’s daily yuan sales would plunge in the coming month to the equivalent of $200 million.
The central bank had been selling $7.3 billion worth of yuan per day during the past month. The plunge coincided with oil giant Rosneft’s 15 billion yuan bond placement, which also sapped liquidity from the market.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” said Sberbank CEO German Gref, stressing that the central bank needed to participate more actively in the market.
The yuan has become the most traded foreign currency on MOEX after Western sanctions halted exchange trade in dollars and euros, with many banks developing yuan-denominated products for their clients.
Yuan liquidity is mainly provided by the central bank through daily sales and one-day yuan swaps, as well as through currency sales by exporting companies.
Chinese banks in Russia, meanwhile, are avoiding currency trading for fear of secondary Western sanctions.
At the start of September, banks raised a record 35 billion yuan from the central bank through its one-day swaps.
“I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps,” said Andrei Kostin, CEO of second-largest lender VTB, stressing that exporters should sell more yuan as well.
The acute yuan shortage also follows months of delays in payments for trade with Russia by Chinese banks, which have grown wary of dealing with Russia after U.S. threats of secondary Western sanctions. These problems culminated in August in billions of yuan being stuck in limbo.
Russia and China have been discussing a joint system for bilateral payments, but no breakthrough is in sight. VTB’s Kostin said that since Russia’s trade with China was balanced, establishing a clearing mechanism for payments in national currencies should not be a problem.
Forex
Bank of America sees more downside for the dollar
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Investing,com – The US dollar has stabilized after a sharp fall in August, but Bank of America Securities sees more troubles ahead for the US currency.
At 07:20 ET (11:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.077, having largely held its course over the last week.
That said, the US currency is still down 1.6% over the month.
The dollar’s selloff last month stood out in a historical context, according to analysts at Bank of America Securities, in a note dated Sept. 5.
The greenback has since stabilized, however, despite the outsized weakness, the US bank still sees three reasons to stay bearish on the Dollar Index (DXY).
Following similar episodes of bearish DXY breakouts, the index has tended to continue its downtrend, the bank said.
In the last 3 analogs, DXY index fell on average for another 4% before reaching a bottom. Extending this analysis to bilateral USD/G10 pairs suggests a continuation of the USD downtrend is more likely vs EUR, GBP, and AUD than SEK, NOK, and CHF in G10.
While the DXY made a new year-to-date low in August, broad nominal and real USD trade-weighted indices have stayed at Q4 2022 levels and would suggest the USD remains overvalued.
The USD selloff in 2024 has been concentrated in and other European currencies, leading to DXY divergence from other USD indices.
The bank also noted US 10y Treasury yield’s tendency to fall after the first Federal Reserve cut, while global financial conditions are set to loosen further.
“USD may see more weakness as other central banks, particularly the ones that cut policy rates ahead of the Fed, can now afford to let the Fed do some of their work and indirectly support global economies outside of the US,” BoA added.
Forex
Dollar’s demise appears overstated – JPMorgan
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Investing.com – The US dollar has had a difficult summer, dropping substantially during the month of August, but JPMorgan thinks those predicting the demise of the U.S. currency are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.127, having lost 1.6% over the course of the last month.
“Diversification away from the dollar is a growing trend,” said analysts at JPMorgan, in a note dated Sept. 4, “but we find that the factors that support dollar dominance remain well-entrenched and structural in nature.”
The dollar’s role in global finance and its economic and financial stability implications are supported by deep and liquid capital markets, rule of law and predictable legal systems, commitment to a free-floating regime, and smooth functioning of the financial system for USD liquidity and institutional transparency, the bank added.
Additionally, the genuine confidence of the private sector in the dollar as a store of value seems uncontested, and the dollar remains the most widely used currency across a variety of metrics.
That said, “we are witnessing greater diversification and important shifts in cross-border transactions as a result of sanctions against Russia, China’s efforts to bolster usage of the RMB, and geoeconomic fragmentation,” JPMorgan said.
The more important and underappreciated risk, the bank added, is the increased focus on payments autonomy and the desire to develop alternative financial systems and payments mechanisms that do not rely on the US dollar.
“De-dollarization risks appear exaggerated, but cross-border flows are dramatically transforming within trading blocs and commodity markets, along with a rise in alternative financial architecture for global payments,” JPMorgan said.
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