Speaking of the surging U.S. dollar, prominent Canadian economist David Rosenberg recently noted that the Greenback’s sharp rise has created a headwind for the U.S. economy that is equivalent to a 3.00% rise in the Fed’s overnight rate, which is felt mainly by U.S. exporters whose products are now less competitively priced in global markets.
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“The New York Federal Reserve data was not a positive one but employment and prices remain the key points towards a potential rate hike”, said Shinichiro Kadota, chief Japan FX strategist at Barclays (LSE: BARC.L – news) in Tokyo.
“On the physical side, however, while buying interest has eased back from last week’s high volumes, have been generally solid so far”. The rand is expected to come under more pressure from inflation and retail figures for July due on Wednesday.
Efforts by the authorities to boost lending to stimulate the economy mean that credit is becoming more readily available and at lower rates, thus reducing the need for gold as security for loans.The WGC said in a report last year that as much as 1,000 tonnes of gold may have been used for financing deals in China.
Most bets are for the Fed to lift rates in September, underpinned by reports on retail sales and industrial production last week. And a rate hike from the Federal Reserve looms.
Editor’s Note: The Interest Rate Update appears weekly on this blog – check back every Monday for analysis that is always ahead of the pack. “The market has been pricing in downside risks from China for a long time”.
At the heart of most of the arguments is a view on how Chinese consumers will respond to the recent developments but it seems this is largely guesswork on the part of analysts, as there are few precedents to serve as a guide to future behaviour. It may be wrong, but China’s government obviously believes that lowering the value of its currency relative to the dollar will improve its trade balance.
The dollar also managed to shake off a relatively steep drop in U.S (Other OTC: UBGXF – news). two-year and 10-year Treasury yields that occurred in the wake of manufacturing survey. “We still think the yuan has been overvalued and an adjustment in the yuan was necessary”, said Bart Wakabayashi, head of forex at State Street Global Markets. In this case, many of China’s competitors deliberately followed the same path with their currency. European stocks ended a choppy session in mixed territory after a duo of US data sent conflicting signals about the strength of the country’s economy. This doesn’t sound very plausible.
In Europe, the Stoxx 600 Index shed 2.7 percent last week. Is there nothing that President Obama could have offered China to persuade it to not devalue its currency? Indeed, China has “manipulated” its currency, and I’ve written columns about this.
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Turing to US equities, the Dow Jones industrial average and S&P were each up 0.4 percent, while the dollar was 0.3 percent stronger at $1.1077 against the euro.
