Baku, Azerbaijan, July 3
By Anvar Mammadov - Trend:
The China’s yuan (CNY) weakened further overnight after Chinese authorities set the fix lower for the CNY once again, with USD/CNY rising above 6.72 overnight before settling back toward 6.67 as of this writing, Head of FX Strategy at Saxo Bank John Hardy told Trend on July 3.
At its weakest levels overnight, the currency had weakened over 4.5 percent versus the US dollar in the space of less than three weeks, he noted.
“The key question here is whether China is trying to send a message to President Trump in the showdown over trade or whether the message is intended for the Powell Fed,” Hardy said. “In other words, China may be looking back to the early 2016 timeframe and how the strong US dollar finally triggered then-Fed chair Yellen to back away on forward guidance on further rate hikes – seen at the time as the key change of course that revived global markets.”
“Perhaps China is hoping it can trigger a similar reassessment from the Fed this time around as China’s policy needs at the moment sharply diverge from those of the US,” the expert added. “If so, it is a risky gambit and could get Trump’s attention first.”
In Australia, the Reserve Bank of Australia left rates unchanged and left the language on the economy unchanged, though it highlighted new risks, including tightening global financial conditions and the higher funding costs in Australia domestically, according to the expert.
“Nevertheless, Australian markets are oddly ebullient, with the widely followed ASX 200 index reaching record highs even as the market frets the risk of a yuan devaluation and key commodity price developments have been less than inspiring,” he said.
“In Germany, Chancellor Merkel and her coalition partner’s leader Seehofer struck a deal on dealing with migrants that has saved the nearly 70-year-old coalition for now, as new transit centers will be setup along the German and Austrian border to process migrants and seek to return them to the countries that are processing their cases,” Hardy noted.
“This provided little upside for the euro overnight as the currency remains mired in the range between 1.1500 and 1.1700+ versus the US dollar,” he said. “The run from here through the end of this week looks pivotal for the US dollar, which has gotten stuck in a nervous area in the majors – the FOMC minutes are unfortunate in that they pre-date the latest move in the Chinese currency, so the market may have to wait for the July 17 Powell testimony before Congress for a better feel for the Fed’s current thinking. So It will be up to economic data to carry the day.”
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