The US dollar is consolidating its gains against most of the major currencies, but the underlying strength remains evident. Several major and emerging market currencies are at new lows for the year, including sterling and the New Zealand dollar, but also the yuan, rupee, and the rupiah. Indonesia’s central bank meets later this week, and a 25 bp rate hike that had been expected may not be enough to deter additional losses.
The Chinese yuan extended its losing streak. The offshore yuan (CNH) has fallen for 11 consecutive sessions. The slide is on roughly the same pace as seen in the 2015 devaluation. Just as the US equity market saw initial gains reversed by the close yesterday, the Shanghai Composite, and Chinese shares more generally, failed to hold on to initial gains and finished lower (~1%) for the fourth consecutive session. Chinese officials do appear increasingly concerned about the risk of a vicious cycle. One step being considered is to ban the issuance of short-term dollar bonds, which previously did not need pre-approval by regulators. This has been one of the favorite tools in the property developments space.
Foreign selling pressure continues in Asia shares. The MSCI Asia Pacific Index fell for a fourth straight session and is off around 2.8% this week. Foreign investors. Since June 6, foreign investors have been net sellers of Korean shares in all but two sessions, and have only bought Taiwanese shares once.
Among the major currencies, the New Zealand dollar is the weakest. It is off roughly 0.5% (~$0.6760). It has only advanced in two sessions since June 6 and over the three weeks has depreciated by about 4%. Today’s driver was the dovish hold by the central bank. Governor Orr warned that rates would remain low for some time and that the next move could be a cut or a hike.
Selling pressure on the euro eased as it approached the lower end of its recent range just above $1.1500. Today’s low was a little below $1.1530. A nearly billion euro option struck at $1.15 expires today. There is a 645 mln euro option at $1.1585 that will also be cut today. The dollar is steady against the yen and spent most of the Asian session and European morning above JPY110. A trend line drawn off the recent highs intersects today near JPY110.70. Only a break above it lifts the technical tone.
