Forex
Asia FX rises on Fed pivot hopes; NZ dollar boosted by hawkish RBNZ
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Investing.com– Most Asian currencies rose on Wednesday as less hawkish signals from Federal Reserve officials ramped up hopes for an early interest rate cut in 2024, which put the dollar near four-month lows.
The was the best performer for the day, rallying nearly 1% after the Reserve Bank of New Zealand , but flagged potential rate increases in 2024 as inflation remained sticky.
The RBNZ hiked its forecast for peak interest rates in 2024- which saw analysts at Westpac now forecasting a 75% probability of an at least 25 basis point hike in the coming months.
Asia FX up, dollar near 4-mth low after Fed officials talk pivot
Broader Asian currencies advanced after Fed officials said in overnight comments that the bank was likely done hiking interest rates, and could even consider an early interest rate cut if inflation falls further.
Traders began pricing in an the Fed will trim rates by as early as March 2024. Focus was now on data- the Fed’s preferred inflation gauge- due later in the week.
The and plummeted following the Fed comments, and fell between 0.1% to 0.2% in Asian trade on Wednesday. The two indicators were also at their weakest level since early-August.
Most Asian currencies logged strong gains on the prospect of a Fed pivot, given that it points to easing pressure on risk-heavy yields. The rose 0.2% to a near two-month high, and moved further away from the 150 level. Focus this week was also on Japanese and data, due on Thursday.
But the yen curbed some recent gains after Bank of Japan board member Seiji Adachi said that it was still too early to consider a pivot away from the central bank’s ultra-dovish stance.
The rate-sensitive was flat after rallying 0.8% in overnight trade, while the led gains across Southeast Asian currencies with a 0.6% spike.
The lagged its peers, sticking close to record lows amid pressure from India’s large trade deficit. A spike in oil prices also weighed on the currency.
The also lagged its peers for the day as data showed (CPI) inflation grew less than expected in October, dampening bets on more interest rate hikes by the Reserve Bank of Australia. But CPI still remained well above the RBA’s target range, while core inflation remained sticky.
Chinese yuan firms, PMIs in focus
The rose 0.3% following a stronger daily midpoint fix from the People’s Bank of China, briefly touching a five-month high of 7.1201 to the dollar.
While the yuan saw a strong run of gains through November, concerns over a sluggish Chinese economy still persisted, especially after a string of weak economic readings for October. This kept the currency trading above the psychologically important 7 to the dollar level.
Focus this week was on purchasing managers index (PMI) data for November, due on Thursday. The reading is expected to show a sustained decline in , highlighting continued weakness in China’s biggest economic engines.
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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