Forex
Asia FX firms as dollar stalls amid rate cut bets, political uncertainty
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Investing.com– Most Asian currencies drifted higher on Tuesday, while the dollar retreated as the greenback’s rebound was held back by continued expectations of interest rate cuts and uncertainty over the 2024 presidential election.
Still, sentiment towards Asia remained constrained by concerns over China, amid signs of a slowing economic recovery and uncertainty over how U.S. policies will treat the country in the coming months.
Japanese yen outperforms, USDJPY down to 156
The Japanese yen was the best performer for the day, continuing to strengthen against the dollar after suspected intervention by the government last week.
The pair fell 0.4% to 156.41 yen, coming close to a 1-½ month low.
A senior member of the Japanese government called for more clarity on interest rate hikes by the Bank of Japan, the reported on Tuesday. The comments come just a week ahead of a , where some analysts expect the bank to hike interest rates by 10 basis points. A recent increase in countrywide inflation supported this notion, although inflation still remained relatively sluggish.
Uncertainty over the BOJ has been a key weight on the yen in recent months, as the central bank provided few cues on when it will tighten policy further.
Dollar dips with presidential race, rate cuts in focus
The and both fell 0.1% each in Asian trade, stalling after a sharp rebound over the past two sessions.
The greenback turned volatile amid increased uncertainty over the U.S. presidential race, after President Joe Biden said he will not seek reelection, and endorsed Vice President Kamala Harris as the Democratic nominee.
Reports on Monday said Harris had won enough support from Democratic delegates to become the party’s presidential nominee, but will still need to be formally nominated.
Still, Republican nominee Donald Trump was seen polling ahead of Biden and Harris as of last week, CBS and HarrisX data showed.
Expectations of a Trump presidency had enabled some strength in the dollar, as analysts said he would be likely to enact protectionist trade policies.
But the dollar was nursing steep losses in recent weeks amid growing conviction the Federal Reserve will cut interest rates in September. The central bank is set to at a meeting next week.
Broader Asian currencies drifted higher. The Singapore dollar’s pair fell 0.1%, while the South Korean won’s pair fell 0.3%. South Korean producer inflation picked up slightly in June, data showed.
The Indian rupee’s pair fell slightly but remained close to record highs hit earlier in July. Focus was on the Indian government’s , set to be unveiled later in the day.
Chinese yuan fragile amid economic uncertainty
The Chinese yuan moved little on Tuesday, seeing little relief after an unexpected interest rate cut by the People’s Bank of China.
The pair hovered around 7.2738 yuan, remaining close to levels last seen in November.
The currency was battered by increasing uncertainty over the Chinese economy, especially after recent data showed it grew less than expected in the second quarter.
Speculation over a Trump presidency also weighed on the yuan, given that Trump’s administration had sparked a trade war with Beijing in the late-2010s.
Concerns over China pressured some Asian currencies. The Australian dollar’s pair fell 0.1%, pressured by the country’s large trade exposure to China.
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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