The Indian rupee is set to decline on Friday as the US dollar index and US yields rise. Non-deliverable forwards predict the rupee will open at around 82.70-82.75 to the US dollar, close to a two-month low. Automated intervention by the Reserve Bank of India is expected right at the open, according to a forex spot trader. Asian currencies fell, with the offshore yuan dropping to a level last seen in December, caused by rising US yields and a rising dollar index. The odds of a Fed rate hike in June rose over 30% due to recent US employment data.
President Biden has been accused of quietly remaking the US for the worse since he was inaugurated, with a typical American family now losing over $7,000 in purchasing power in just over two years. Among Biden's alleged hidden taxes is inflation, which he promises to not increase on those making under $400,000 a year, has wiped 15% off the value of the dollar, disproportionately affecting low-income people. According to the author, the debt Biden implemented as part of COVID-19 packages has shrunk the value of the dollar and Biden has extended the use of executive orders to pursue his agenda, sometimes increasingly unconstitutionally.
Alex Salter's new paper for The Heritage Foundation explores the relationship between free markets and the common good, and the framework it provides for thinking about economics, the human person, and community. Salter engages with nationalist trends on the American political right, rather than dismissing them as incompatible with classical liberal conservatism, and aims to figure out what the disagreements between the newer kind of conservative and older classically liberal conservatives are as well as to discuss the policy going forward. He highlights that just because there is a good understanding of how markets work, this does not necessarily give way to a broad-based deep-level critique of society's basic institutions.
Salter uses the example of Catholic social teaching to explain what is meant by the ‘common good’. He argues that if someone sees the world and only sees individuals, they are unlikely to see meaning in the concept of the common good. However, communities, such as families, nations, and other social institutions, are real and have needs that are not reducible to some private goods of their individual members. Therefore, Salter makes the case for engaging the broader political economic art that exists beyond scientific economics to help ensure essential communities can shape their individuals for the greater good.
China's yuan is experiencing its fastest depreciation in three months. The country's central bank has not intervened to stop the decline as the offshore yuan sunk to 7.075, potentially marking the biggest loss in three months. China's data releases have shown disappointing results which have impacted the yuan. It is suggested that the currency's fall may be indicative of China's acceptance of the new psychological threshold. At present, China's authorities have allowed the currency to adjust to the dollar, however, it will push back if the currency pushes lower than agreed levels.
The South African rand strengthened slightly in early trading as the US dollar weakened ahead of a speech by Federal Reserve Chair Jerome Powell and an S&P rating review for South Africa later in the day. The rand hit an all-time low last week due to domestic power crisis fears and allegations of weapons shipments to Russia. Among the factors affecting it this week are a SARB interest rate decision, and an auction of inflation-linked bonds and Treasury bills.
Chinese forex regulators have obliged major banks to help stabilise the yuan and stop the currency’s “big rises and falls” after the exchange rate versus the US dollar slipped below the 7 per US dollar level this week. They called for enhanced supervision and analysis of forex-market operations to “correct pro-cyclical and unilateral behaviours”, guide expectations and curb speculation. The move follows Nomura’s downgrade of its estimate of China’s economic growth this year to 5.5% from 5.9% after April's poor economic data indicated a slowing of activities including industrial output and consumer sales, potentially affecting the US dollar.
The pound is set to record a second consecutive weekly fall against the dollar, following a 1.45% slide last week, due to the resurgent dollar and weakness in the UK economy, with Brexit negotiations and weak data releases adding further pressure. After hitting a low of $1.0327 in September 2016, the pound has held well overall, boosted by a strong performance from the economy, although the failure of the Scottish National Party to make gains in that country's recent election has made Brexit negotiations tougher.
China's central bank, the People's Bank of China, will work to prevent large fluctuations in the exchange rate and study the strengthening of self-regulation of dollar deposits, the bank said in a statement on Friday. The announcement follows the weakening of the yuan to multi-month lows and a breach of the 7-per-dollar level, attributed to a slow economic recovery, low yields and a strong US dollar. The bank and forex regulator will take measures including curbing speculation and correcting pro-cyclical and one-sided behaviour to guide expectations. China will also enhance self-discipline management of US dollar deposit businesses and improve currency hedging services for firms.
The Indian rupee recorded it's worst week in nine, fuelled by a strong US dollar which has been backed by a hawkish Federal Reserve and optimism surrounding talks on a breakthrough in the US debt ceiling. Analysts suggest that the rupee's performance is in keeping with other global currencies in the same position, attributing the fall to an increase in the USD. Meanwhile, hopes for a deal over the US debt ceiling lifted the dollar to eight-week highs this week with the US dollar index gaining almost 2% in the past two weeks.
Investors are choosing emerging market local currency bonds over dollar assets, as inflation drops and attractive yield rates are offered. From January to April, emerging market hard currency bond funds were hit with a net withdrawal of $2.65bn, while $5.23bn was invested in local currency bond funds. According to fund flow data provider EPFR Global, this year JPMorgan’s emerging market benchmark for local currency government bonds has delivered a 6.8% total return - more than three times its hard currency counterpart.
The Canadian dollar held most of its weekly gains against the US dollar, despite losing 0.1% to close at 1.3510, as official Canadian data revealed March retail sales to have fallen by 1.4% from February. However, earlier in the week it was reported that the annual Canadian inflation rate rose for April by 1.8%, its first increase in 10 months, meaning that the chances of the Bank of Canada raising its key interest rate had increased.
Mexican peso to stay strong despite end of central bank tightening cycle, analysts say
Reuters
23-05-19 19:23
The Mexican peso is set to remain the top currency performer among major global currencies, despite the country's central bank halting a two-year rate-hike cycle, according to experts. The currency traded at 17.40 per dollar, the strongest in seven years, and analysts believe it will soon fall below 17 pesos per dollar. Key factors boosting the currency include steady remittances inflows, robust export growth and an investment boost from nearshoring, where factories are moved to nearby countries with lower production costs. Mexican economists expect the peso to weaken to 19.13 by year-end.
The US government's continued borrowing has led to concerns that the dollar might be at risk, but there is no currency alternative, according to an opinion piece in the FT. Bank deposits are backed by the country's explicit guarantee of $250,000 of deposits from the Federal Deposit Insurance Corporation, while dollar-denominated deposits at foreign banks are almost explicitly guaranteed by the Federal Reserve through agreements to swap currencies with foreign central banks in a crisis. Financial markets function based on treasuries, but sovereign debt has remained the bedrock of the global financial system since 1694, and no other country has the ability to produce sovereign debt assets anywhere close to the US.
Chairman of Miniso Group Holdings, Ye Guofu, has its sights set on becoming an international “super brand” it looks to expand beyond its core markets of Asia and North America. Guofu stated that he hopes the brand will be renowned for “fashionable, trendy and constantly rolling out new products adored by young people all around the world. “In the future, every consumer in the world will use Miniso’s products like they turn to Nike for clothes and sneakers, Starbucks for coffee and Coke for drinks," Guofu stated.
Several countries across the Middle East have reportedly moved away from the US dollar in reaction to ongoing dollar rationing strategies set in place by the United States. As previously reported, on 15 May 2021 Iraq band all business deals and exchanges of the dollar with Iran, and underlining an existing case where the nation’s authorities made it more difficult for individuals to obtain dollars as the US had revealed increasing concerns that much of its currency was being smuggled to Iran, which is under sanctions. This extreme measure against the dollar has since highlighted a trend in the Middle East where the continuous slowing of the currency’s value has led Saudi Arabia's finance minister to state it is “open” to pricing oil sales using different currencies, including the Chinese yuan and the euro. Similarly, in February this year, Iraq confirmed its intention to conduct business with China using yuan, instead of dollars.
Detente seems to be in the air between China and America according to an opinion piece in Bloomberg. It describes several significant breakthroughs in meetings between Chinese and American officials, a far cry from the frosty silence of recent times. Perhaps most poignantly, President Joe Biden’s National Security Adviser Jake Sullivan recently gave a speech at The Brookings Institute where he appeared to be intent on making Cold War II less chilly. Moreover, the opinion piece argues that the Chinese economy may not live up to its great expectations, showing some signs of headwinds with China’s dire demographic prospects and over-leveraged and depressed real estate sector.
Goldman Sachs has reduced its forecast for China's yuan over the coming three months, predicting that it will see more drops, reaching 7.1 to the dollar in the near-term, amid a combination of the trade war with the US and domestic policy moves from Beijing. Mitul Kotecha, head of emerging markets strategy at TD Securities, argued that China’s policymakers may benefit from a devaluation of the currency, given that it could fuel the economy, but added that this would only be a short-term effect. Other analysts are also anticipating the yuan to weaken further, with Citigroup eyeing up a decline to 7.2 USD on the back of weak economic data. Nomura, meanwhile, predicts an equivalent value by mid-July.
The Indian rupee is set to open lower against the US dollar after the Reserve Bank of India (RBI) announced it would withdraw the highest denomination 2,000-rupee note. The RBI's move is expected to impact the cost of carry, or forward premiums of the USD/INR, which are already low, with reports expecting further declines. The excess liquidity that the withdrawal of the 2,000-rupee note is expected to lead to, will likely result in a significant drop of the rupee money market rates and hence pressure on the Indian currency.
The US dollar fell against the yen and euro on Monday after US debt negotiations broke down and the Federal Reserve's Jerome Powell indicated a preference for slowing down rate hikes. The dollar slid 0.15% to 137.715 yen, and the euro rose 0.14% to $1.0822. Investors are waiting for US President Joe Biden and House Republican Speaker Kevin McCarthy to meet on 24 May to discuss the debt ceiling. Many analysts believe this type of brinksmanship is to be expected before the Treasury runs out of money around 1 June.
Chinese currency renminbi (RMB) is considered a contender to challenge the US dollar as the world's sole reserve currency given the size of the Chinese economy and its role in global trade. However, the currency is not suited for this purpose, and China would need to undertake several key actions to enable it to meet the international standards for a global reserve currency. Karthik Sankaran, a veteran in foreign exchange, said that a more multi-polar foreign exchange landscape could benefit world financial stability if it happens.
