“Heightened concerns about a global slowdown have triggered the recent moves…Since there’s no change to the view that China is not doing well, the key becomes the U.S.”, he said.
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Rising concern over China’s slowing growth-and its impact on global inflation, commodity prices and emerging-market economies-had been building since past year, but accelerated two weeks ago after the PBOC devalued its currency. Commodities also rose.
“Our central case is still that the Fed can deliver a hike, although our confidence level is fairly low”, Nomura’s Jens Nordvig, the No. 1 currency strategist in Institutional Investor rankings for five years running, wrote in a research note published August 21. But investors remain wary of the dollar’s short-term prospects and continue to seek further signs of stability in China and stock markets, as well as stronger U.S. data, to make the case for the Federal Reserve to increase interest rates in 2015.
“The remark raised hopes for policy measures and apparently helped lift the dollar against the yen”, a currency broker said.
In a speech in the U.S. late on Monday, Atlanta Federal Reserve Bank President Dennis Lockhart said he expects the Fed to start raising interest rates sometime before year’s end and to do so gradually.
The Mexican peso hit a fresh record low (http://www.marketwatch.com/story/mexican-peso-hits-record-low-vs-dollar-could-go-lower-2015-08-24) against the dollar Monday, but has since recovered slightly.
If the kiwi extends its uptrend, it is likely to find resistance around 0.69 against the greenback, 85.00 against the yen and 1.66 against the euro. There was also talk of dollar-buying by Japanese players. “Markets don’t think worst is over in China; it could spook markets again in the coming days and weeks”.
Chief Cabinet Secretary Yoshihide Suga said Tuesday that amid volatile global stock prices, Tokyo is working out measures in collaboration with the finance ministries and central banks of other Group of Seven major industrial nations. The calculation is based on the assumption that the effective fed funds rate will average 0.375 per cent after the first increase.
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As the rout in global stocks and commodities altered bets on the trajectory of the currency market, two of the most influential banks adjusted their dollar forecasts – in opposite directions. While the “Greenback” was performing well against the commodity currencies (which lost out massively as a result of the Black Monday turmoil) the US Dollar may flounder if today’s US Markit Services PMI shows a slowing in output.
