Dollar and the gunman
By Peter Rosenstreich
“It’s quiet,” says the gunman as he horses his way into the dusty western town. “A bit too quiet.” Then shots ring out – and you know the rest….. That’s how things are for the US dollar: a bit too good to last.
Risk sentiment has improved as fears of a total Turkish meltdown have subsided. The annual Jackson Hole conference will begin on Thursday: that should give news on fundamentals. Federal Reserve Chairman Powell should signal if he plans a fourth rate hike in 2018. While the US is outperforming its G10 peers, the dollar also has been pumped up by previous rate hikes and by its safe haven benefits. If the Fed fades on a fourth hike, we see further USD weakness ahead. It is hard to predict which way the Fed will go. The US economy seems to be progressing as predicted, with growth and employment forecasts on target since June. However, the bank might react more strongly to the downside risk of trade tensions and upside risk for fiscal stimulus.
Chinese yuan below 6.90 as trade talks start
By Vincent-Frédéric Mivelaz
Another round of China-USA trade negotiations start this week. There is a good chance the meeting will not add to import tariffs – at least until November’s multilateral meetings, when a delegation from Beijing will meet with the US. The discussions should stabilize the relationship between both nations, as $16 billion in tariffs should go into effect on 23 August. The recent boost in Chinese onshore and offshore currencies should sustain: currently trading at 6.8530, USD/CNY is heading to 6.8510 in the short-term.
The friendly tone pushed most Asia-Pacific stock markets upward. The CSI 300 and Hong Kong Hang Seng closing at +1.17% and +1.36%, after falling to 2-year and 1-year lows due to concerns of slackening economic growth and trade tensions. Australia’s S&P/ASX200 closed almost flat at +0.10% while Japanese Nikkei 225 remains the laggard, closing at -0.32% due to a sharp drop in FamilyMart UNY Holdings Co (-11.30%) amid a lower-than-expected tender offer from trading firm Itochu Corp.