Dollar retreat providing relief

Ahead of the US December non-farm payrolls (NFP) data release, the US dollar continues to retrace gains.

Currency
Source: Bloomberg

Thursday had all been about movements in the currency market and latest slide in the USD should keep the market’s focus unchanged for a second day.

After retreating from the 14-year high of 103.82, printed on Tuesday, the USD index sunk further to a 3-week low of 101.30 and was last seen on either side of 101.50 into Asia morning. The market interpreted yesterday’s minutes as relatively dovish with committee members seemingly ‘uncertain’ with regards to the effect of the incoming administration’s policies in invigorating the US economy.

That is a view that San Francisco Fed President John Williams certainly reinforced overnight, though he did also remarked that three interest-rate hikes in 2017 is a “pretty reasonable” projection. June’s Fed FOMC meeting, touted as a likely candidate for the next Fed hike, saw implied probability of a hike shrink slightly to 69.8% on Thursday from 72.8% a day ago.

Amongst the majors, the JPY had clocked the greatest 1-day percentage recovery. For emerging Asia, it had all been about the reversal of the renminbi. Offshore yuan, USD/CNH, saw a dramatic drop on Thursday, widening the gap with USD/CNY to more than 700 pips. Underpinning the short squeeze had been China’s strict control amid thin supply.

With the dollar dip, China had strengthened the yuan fixing for a second day by 0.9%, the biggest percentage boost since 2005. Besides the yuan, the Malaysian ringgit had also managed to scrape gains against the USD, falling back to 4.4750 levels for the EMFX USD/MYR this morning.

Asian markets could keep the optimism flowing, though the Japanese market have been hard hit by the strong JPY post the USD decline. Another early mover, South Korea’s KOSPI, saw a different set of performance with Samsung Electronics to credit the moderate gains.

Samsung Electronics reported higher-than-expected Q4 operating profits this morning, bringing share price up by 2.0% when last checked at 8:45am (Singapore time). Broad gains in Asian markets are expected to continue in the day, despite US markets providing little inspiration, the latter weighed by disappointing US jobs data overnight.

Specifically, crude oil prices continue to retrace gains into the end of the week after the official EIA report corresponded to the API report a day earlier, showing a decline in crude stockpiles. This was despite an initial dip as the markets bit on the update of an increase in gasoline stockpiles.

The day ahead will see Malaysia’s November trade data and India’s Q1 GDP figures. The main focus will however be on US December’s NFP release today.

Yesterday: S&P 500 -0.08%; DJIA -0.21%; DAX +0.01%; FTSE +0.08%

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