Chinese stimulus was the top story in FX markets yesterday. Metals markets rallied and the currencies of the emerging market commodity exporters in Latin America and South Africa had a good day. The jury is out on whether this theme can be maintained, ING’s FX strategist Chris Turner notes.
“For example, were Chinese monetary stimulus backed up with some fiscal stimulus then we would have a little more confidence that these short-term trends could follow through. Additionally, we are starting to see USD/CNH trade below USD/CNY – something seen very rarely over the last couple of years.”
“If USD/CNH breaks with momentum below 7.00, we think it would be broadly supportive of global EM currencies and help tilt the dollar lower. In a surprise move yesterday, US consumer confidence was much weaker than expected. The market is very sensitive to this theme since the US consumer has been so resilient for so long.”
“There is only August new home sales data on the US calendar today, but we suspect the dollar can continue to trade on the soft side into the main event of the week, which is Friday's core PCE deflator for August. A low reading of say 0.1% month-on-month could deliver a leg lower in the dollar. Expect DXY to remain contained in a 100.50-101.00 range.”
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