US dollar sleeps in Asia after falling overnight
The US dollar headed directly to jail overnight, consigning my reversal warnings to the rubbish bin. The dollar index fell 0.48% to 89.45, spurred in part by yesterday’s USD/CNY fix by China, which was one per cent higher and marked a 30-month high for the yuan. As asset markets rallied strongly elsewhere, with the global recovery trade in full cry, the US dollar beat a modest retreat against the majors. However, the cyclical Australian and New Zealand dollars rose by over one per cent to multi-month highs.
Things are altogether quieter in Asia, with the greenback almost unchanged versus the G-10 and regional Asian complex. Currency markets are clearly on hold until the result of the Georgia elections is announced. The price action remains consolidative, with the US dollar showing no signs of recouping its overnight losses in a material way. Assuming the results are posted without incident, that implies that the US dollar retreat will resume sooner rather than later.
The FOMC minutes will be released tomorrow morning Asian time, and it would be a major surprise to see anything in them apart from lower for longer. Markets will be looking for insight into how keen the FOMC is to let inflation overshoot while keeping rates low. If the minutes hint at lower for longer, inflation be damned, the US dollar may well be set for another move lower.
Attention will then rotate to this Friday’s US Non-Farm Payrolls data, where we expect an increase of just 100,000 jobs. With stimulus cheques on their way out to Americans, even a much lower print will not sway a Republican Senate from adjusting its stimulus stance. That would likely require a series of terrible numbers into Q1 2020, unlikely at this stage. The Non-Farms always generate a lot of short-term noise in the markets over their release but are unlikely to derail the underlying trends this time around.
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