The US dollar could receive some attention in the coming week based on various factors.
Certainly, we have had US markets closed on Monday for President’s Day and the key event of the week, the Fed FOMC minutes, provided little new insights. The end of the week however, brought some attention back to the political drivers for markets, namely US tax policies and foreign relations, with US Treasury Secretary Steven Mnuchin’s interviews.
The impact upon equity markets had however been muted as the Treasury Secretary kept the discussion to broad strokes. Gold prices had nevertheless managed to ride on the dip in USD overnight as Treasury Secretary Mnuchin dimmed the outlook for economic growth.
A look at the week-to-date (WTD) performance finds that most indices have followed US markets higher. China had also been powering the optimism as well with the anticipation of the equity market injection from pension funds. The ASX 200 had however been a standout exception with commodity prices, specifically metal prices, dragging the index lower on Friday.
Will the USD further recover?
The week ahead carries with it several drivers for the US dollar. The market is likely to find the attention resting on items including President Donald Trump’s first address of the Congress, an update to US Q4 2016 GDP and the appearance by several Fed speakers.
We have been familiar with the fact that President Donald Trump’s appearances can be wildcards for markets but the second reading for the US economy’s Q4 2016 performance is expected to show an upward revision. This could pivot some of the market’s attention back to fundamentals and potentially help the USD index up into the end of February.
Contributing to the attention on fundamental performances would be the series of Fed member appearances, including Fed chair Yellen speaking on economic outlook at the end of the week.
Asian currencies saw broad gains against the USD in the past month with month-to-date flows into South Korea and Taiwanese equity markets driving the two country’s currencies up to top spots. The exception had been the usual suspects including CNH and MYR. A sustained recovery of the USD could however return pressure back to emerging Asian currencies and even more so if the rate hike expectations further builds.
The start of a fresh month also brings with it an update to China’s manufacturing performance. Wednesday will see the release of China’s purchasing managers’ index (PMI) and the market is currently expecting both the official and private Caixin gauge to moderate slightly after January’s print severely missed market expectations.
The Lunar New Year holidays had been recognized as a contributor to the pullback in manufacturing activity for January and is likely to have underpinned February’s expectations as well. China’s manufacturing sector has shown favourable performances lately and this has helped to power the growth in optimism for the Asian region. The upcoming PMI release however, may provide little fresh inspirations for regional markets. Notably, China’s February services PMI will follow on Friday.
In addition to the above, Japan will also see their January production performance released on Tuesday before their inflation data on Friday. Central bank watch finds Bank Negara Malaysia deciding on monetary policy on Thursday with no shift expected. The local Singapore market is expected to find February PMI data updated after the market closes on Thursday.