The market gets back to selling dollars

US dollar dips on RCEP, strong Asia data

With US election concerns still noisy but receding, the Fed likely to ease, and concerns over US growth as Covid-19 rages, financial markets got back to selling dollars on Friday. The dollar index fell 0.27% to 92.70 as the euro, sterling, Swiss franc all rose, and the Japanese yen a notable outperformer. This was a result of a better than expected Japan Preliminary GDP in Q3, which rose 5.00%. This beat the forecast of 4.4%. The story itself is a dollar one though and does not reflect a market upturn in the prospects of the latter.

The signing of the Regional Comprehensive Economic Partnership (RCEP) and a stream of positive data from Asia this morning has seen the dollar continue to retreat. The dollar index falling another 0.15% to 92.58, still ranging, but within shouting distance of monthly support around 92.00. Asian currencies are outperforming with the yuan nearing 18-month highs again and the Thai baht approaching 11-month highs, prompting some noise from the central bank governor. The Korean won is at two-year highs with the New Taiwan dollar at decade highs.

Asia’s North/South recovery split means that the Singapore dollar, Malaysian ringgit and Indonesian rupiah, although stronger, continue to lag their Northern neighbours. More positive news on the vaccine from leaves the road open for them all to outperform and play catchup over the next month.

Although officials from Thailand, Japan and South Korea have all made noises about currency appreciation, or have actively intervened to “smooth” it, currency pressures remain modest. It is a US dollar story foremost, and an Asian recovery story second. Most of the region runs some sort of dirty peg to the greenback, and as long as China continues to allow the yuan to appreciate, appreciation pressure will remain modest with the bloc as a whole moving higher in lockstep.

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