Forex
Asia FX moves little, dollar steady as U.S. inflation looms
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![Asia FX moves little, dollar steady as U.S. inflation looms](https://i-invdn-com.investing.com/news/moved_LYNXMPEHAG0NK_L.jpg)
© Reuters
Investing.com– Most Asian currencies moved little on Tuesday, while the dollar steadied close to a six-month peak as investors hunkered down before data showing a potential rise in U.S. inflation.
Markets were also holding out for more economic cues from China, as recent data showed some improvement in and through August. But the overall outlook for the Chinese economy still deteriorated, with a now forecasting 2023 GDP growth of 5%- in line with China’s official forecast, but lower than forecasts from investment banks.
The remained resilient through this, with the Chinese currency rebounding from a near 10-month low this week as the People’s Bank rolled out a series of strong daily midpoints. The bank was also seen intervening in currency markets to buoy the yuan.
Uncertainty over China kept the trading in a tight range on Tuesday, while a private survey also showed that Australian deteriorated further in early-September.
Other China-exposed currencies moved little, with the and both trading less than 0.1% in either direction.
The fell slightly after rebounding from near record lows on Monday. Markets were also awaiting readings from the country, which are expected to show continued resilience in prices through August.
Japanese yen rebounds amid hawkish BOJ talk
The steadied on Tuesday after rebounding sharply from a near 10-month low overnight. The currency was boosted chiefly by comments from Bank of Japan Governor Kazuo Ueda, who said that an end to the BOJ’s negative interest rates could be close.
Ueda said that the BOJ’s 2% inflation target was within sight, which would give the bank more impetus to begin raising rates after nearly a decade of ultra-loose monetary policy.
But while such a scenario bodes well for the yen, the currency was still nursing steep losses for the year, hit chiefly by a widening gap between local and international interest rates.
Worsening risk sentiment and fears of a BOJ pivot also diminished the yen’s appeal for carry trade this year.
Dollar steady near 6-month high, CPI in focus
The dollar moved little in Asian trade on Tuesday, seeing some consolidation after racing to a near six-month peak in recent sessions.
The and both steadied in the low-to-mid 104s, after briefly breaching 105 last week.
Focus is squarely on due on Wednesday, which is expected to set the tone for a next week. Inflation is expected to have risen at a faster pace in August from July.
Any signs of sticky inflation gives the Fed more headroom to either raise rates further, or keep them higher for longer. While the central bank is widely expected to keep rates on hold in September, it is also expected to until at least mid-2025.
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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