The weakness seen in the US dollar extended further during the Asian session here today. Major FX rates climbed:

  • EUR hit a 3-month high
  • AUD & NZD both to 3-month highs also
  • GBP to a 2-month high
  • CNH was its strongest since early in August
  • Even the hapless yen surged, with USD/JPY to a 7-week low. As I post USD/JPY is on approach to 147.50.

There were no fresh catalysts driving the USD lower, the response to declining US rates continuing.

The Australian dollar had some idiosyncratic drivers with comments from Reserve Bank of Australia Governor Bullock as part of a panel appearance emphasising the concerns at the Bank on high inflation and the potential for expectations for inflation expectations to adjust higher. Such concerns were reiterated in the minutes of the RBA’s November meeting released soon after Bullock spoke. While the minutes gave the usual nod to ‘data dependence’ regarding future rate moves the remarks on why the Bank raised rates in November after a 4-month pause revealed a new-found hawkishness:

  • the increased risks regarding inflation
  • to prevent inflation expectations rising, even modestly
  • a growing mindset among businesses that cost increases could be passed on to customers
  • RBA forecasts assuming one or two more hikes

The AUD rose after the minutes were released, but did subside after. This didn’t last long. The People’s Bank of China set the USD/CNY reference rate at its strongest for CNY since August 7, and stronger (for CNY) than the estimate for the first time since July. The People’s Bank of China had been holding the yuan steady at the reference rate setting around 7.17 for months, despite the market trading it around 10 big figures higher. The setting at 7.1406 (vs. estimate at 7.1677) is something of a relief for the Bank.

Equites in mainland China and Hong Kong rose, benefitting from the news that authorities are preparing more funding for a list of 50 real estate developers. If that comes off it should go some way to helping avoid some defaults. Or, that is the hope, at least.

More broadly for equities, the MSCI Asia ex-Japan stock index hit a two-month high.

dxy usd dollar 3 month low wrap chart 21 November 2023

As a ps. Reserve Bank of Australia Governor Bullock speaks again on Wednesday evening Sydney time (see bullets above).