Dollar struggles in Asia after lift from US retail sales
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The dollar was steady on Friday after China’s central bank appeared to have stopped guiding the yuan lower for now, easing concerns that a weaker Chinese currency could derail plans by the US Federal Reserve to raise interest rates.
The dollar traded at 124.40 yen, flat from late US levels and above this week’s low of 124.21 yen. For the week, it was up about 0.1 per cent.
Volume in Tokyo was relatively thin, with many businesses winding down for the mid-August Obon holiday. Although there are no public holidays, many people take summer vacations around this time, and some offices close.
“Company people have gone on their breaks and left their orders with banks,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
Some commercial accounts would sell dollars above 125.50, he added.
The euro fetched $1.1143, down slightly from late US levels. Still, it was up 1.6 per cent on the week, as the dollar has been hit by speculation that the US might not want a stronger dollar either if China pushes down the yuan.
The euro got a lift this week as investors unwound euro-funded carry trades in the yuan and other emerging market currencies, which were hit hard by the devaluation.
Emerging Asian currencies continued to fall on Friday, on track for steep weekly losses, with the Malaysian ringgit skidding to a fresh pre-peg 17-year low.
On Friday, the People’s Bank of China set the yuan midpoint at 6.3990 yuan to the dollar, slightly stronger than Thursday’s levels.
“Company people have gone on their breaks and left their orders with banks,”
The central bank said on Thursday there was no reason for the yuan to fall further given the country’s strong economic fundamentals.
Beijing’s moves some eased concerns that a cheaper yuan could trigger a “currency war”, or a competition among the world’s biggest economies to cheapen their own currencies to seek a competitive edge.
US interest rate futures prices edged down and US bond yields bounced back as investors priced in an increased likelihood of a Fed rate hike in September. Solid US retail sales data also supported the case for an early rate hike.
The dollar index, which tracks a basket of six major currencies, stood at 96.420 , off a one-month low of 95.926 hit on Tuesday.
Still, market players are not sure how much more the dollar can gain, assuming the yuan could fall further in the face of a slowdown in the Chinese economy.
“The latest concerns triggered by the sudden policy action may be subsiding a tad. But there is no change in the fact that the Chinese economy is slowing,” said Masafumi Yamamoto, senior strategist at Monex Securities.
“I think the yuan has become overvalued as other countries tried to cheapen their currencies and it will keep falling, playing catch-up,” he added.
While most major currencies saw limited moves on Friday, the New Zealand dollar fell after domestic retail sales had the slowest increase in two years, cementing expectations the Reserve Bank of New Zealand will cut rates.
The New Zealand dollar traded down 0.5 per cent at $0.6535 , down about 1.3 per cent for the week.
Questions & Answers
Q.Why did the euro gain against the dollar this week?
Why did the euro gain against the dollar this week?
The euro received a boost as investors reversed euro-funded carry trades in the yuan and other emerging market currencies. These trades were unwound after the devaluation of the yuan hit emerging market currencies hard.
Q.What led to increased expectations of a US Federal Reserve interest rate hike in September?
What led to increased expectations of a US Federal Reserve interest rate hike in September?
Expectations for a September rate hike increased due to strong US retail sales data. This, combined with the apparent halt in China's central bank guiding the yuan lower, contributed to the sentiment for an earlier hike.
Q.What impact did China's central bank's recent statements have on global currency concerns?
What impact did China's central bank's recent statements have on global currency concerns?
China's central bank stating there was no reason for the yuan to fall further eased fears of a 'currency war'. This reduced concerns that a cheaper yuan could trigger competitive devaluations among major economies.
Q.Why did the New Zealand dollar fall significantly this week?
Why did the New Zealand dollar fall significantly this week?
The New Zealand dollar dropped after domestic retail sales showed their slowest increase in two years. This cemented market expectations that the Reserve Bank of New Zealand would proceed with cutting interest rates.
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