Dollar weakens further

The dollar slide dominated the currency markets with yesterday’s selloff appearing to be not quite done yet as European traders enter the fray.

Stacks of U.S. one-dollar bills are arranged for a photograph in New York
Source: Bloomberg

The dollar index slipped further below 93.50 to a near four-month low. This ‘benefitted’ the euro, which broke above 1.14 (briefly) for the first time in almost three months.

Investors continued to be spooked by volatility in the bond markets and the realisation that a stronger pickup in US growth may not materialise in Q2.

This culminated in the cautious undertones we’ve seen in the Asian markets and partly contributed to the greenback weakness.

An unintended consequence was the sustained AUD strength, despite an RBA rate cut and official rhetoric on Aussie overvaluation.  The AUD/USD rallied to $0.8164, the highest since 20 January 2015.

Several factors have bolstered AUD resilience recently, including the return of carry trade, expectations that the Australian government will tolerate fiscal deficit for the time being, and recovery in iron ore prices. Now a softer USD will add to that list.

Mixed Asian equities

Asian equities were traded without a cohesive theme with varying performances seen across the region. Chinese markets appeared to be moving into consolidation mode and even Shenzhen Composite seems to have run out of steam. The FTSE China A50 and CSI 300 Index fell further at -0.7% and -0.4% respectively.

This corresponded with a 0.6% decline in H-shares. Investors may be freeing up capital to buy into a fresh batch of 20 IPOs due on 19-20 May, which is expected to lock up CNY 2.79 trillion (USD 450 billion).

The Straits Times Index (STI) continued to consolidate amid waning volume as majority of corporate earnings missed estimates, except Comfortdelgro. Meanwhile, Singapore Airlines, Genting Singapore and Thai Beverage are expected to announce their profits after the market close while Olam and Starhub should unveil their Q1 earnings reports on Friday.

Ahead of the US open

The weaker dollar and hopes of further pushback in the Fed rate increase timeline could provide some relief for US equities. Ahead of the US trade, we are calling US indices firmer with DJIA 18125 +65; SPX 2107 +8.

The market will look to jobless claims data for clues that Fed’s expectation in a stronger Q2 growth is misguided. Consensus is for an increase of 8000 to 273,000 claims.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.