FX Roundup: Dollar rides high as India slashes interest rates
The dollar continued to trade higher on Tuesday for better parts of the trading session in Asia and Europe, while the Reserve Bank of India moved to cut interest rates.
In addition to the continuation of higher levels against selected emerging market and commodities-linked currencies, the greenback also posted a strong performance versus a basket of global currencies, excepting the yen.
At 1243 BST, the pound was down 0.05% against the dollar changing hands at $1.5151, while the euro slipped 0.12% changing hands at $1.1230. Meanwhile, the dollar slipped against the yen, down 0.05% at JPY119.86, and was broadly flat against the Swiss franc changing hands at CHF0.9728.
Rabobank’s senior FX strategist Jane Foley said the yen has a long history as a safe haven currency, with investors currently pondering whether the euro could act as one too.
“When risk appetite was strong, the JPY was shorted in favour of high yielding currencies and on bad news these trades were reversed and the JPY appreciated. The Eurozone does have a strong current account surplus and at the start of this year heightened levels of risk appetite led investors to short the EUR in favour of higher yielding currencies.
“However, Grexit and trouble in the Chinese equities market created a wave of short-covering in the EUR as well as the JPY. Both currencies have been reasonably well correlated over the past few months, but it is a stretch to consider that the crisis-ridden euro is a safe haven currency."
Meanwhile, emerging market currencies continued to trade lower against the dollar in line with traders’ expectations as the Reserve Bank of India cut the country’s benchmark interest rate by 50 basis points to 6.75%.
The median forecast from economists had been for a reduction to 7.0%. At the close of trading in Mumbai, India’s commercial hub, a dollar was exchanging at INR65.9550, down 0.14%, having risen by 0.23% against the rupee in wake of the decision.
Elsewhere, the dollar rose against the Singapore dollar (up 0.04%), Korean won (up 0.59%), Thai baht (up 0.17%), Taiwan dollar (up 0.12%), Indonesian rupiah (up 0.11%) and the Malaysian ringgit (up 0.76%) for yet another session, with the latter two reaching fresh 17-year lows against the greenback.
However, early afternoon European trading saw the Australian dollar recoup losses against its US counterpart, clawing back 0.11% changing hands at US$0.6997. Concurrently, the New Zealand dollar also rose 0.47% against the greenback changing hands at US$0.6359.
The greenback was broadly flat against the Canadian dollar changing hands at CAD$1.3399, but its retreated marginally against other prominent commodities linked currencies such as the Brazilian Real (down 0.05%) and the Norwegian Krone (down 0.31%).
Despite the session’s movements, Kit Juckes, head of forex at Societe Generale, said the Australian and New Zealand dollars remain weak along with a raft of emerging market currencies.
“Risk-aversion is in full tilt in Asia with equities in the red and USD/MYR again leading USD/Asia crosses higher. Yen continues to outperform. I can only reaffirm a bearish bias to Asian emerging currencies overall, a reluctance to try and catch falling knives in the region until there is more clarity about how Chinese currency policy will play out.”
Of particular interest, would be whether an orderly and modest deprecation of the yuan can be managed, which is a tall order according to Juckes.