Forex Comment Mar 23

Dollar stable after bout of weakness; yuan steady

Greenback strength expected to improve following Federal Reserve action 

by Uwe Parpart
Dollar stable after bout of weakness; yuan steady
Sen. Kelly Loeffler (R-GA) uses hand sanitizer during a Senate GOP lunch meeting in the Russell Senate Office Building on Capitol Hill March 20, 2020 in Washington, DC. Lawmaker and Trump administration officials failed to agree the phase 3 coronavirus stimulus bill. Photo: Drew Angerer/Getty Images/AFP 

(ATF) - After opening in line with the previous close (DXY open = 102.3580), the dollar suffered a bout of weakness in Asian morning trading as the US Congress divided along ideological fault lines and failed miserably to pass the expected $2 trillion stimulus package.

But by 6pm HK time, the DXY had recovered most of its lost ground (it had been down to 101.8310) and traded at 102.6770 as S&P500 futures came back in from limit down.

USD/CNY central parity was set at 7.0940 in the morning, moved very little against the USD in before-noon trading, but gave away some ground with stronger US futures and the DXY. The yuan rate stood at 7.1184 at 6pm.

The picture is largely identical to most sessions last week as the yuan, with some mild weakness, was steady against the USD. As we have pointed out repeatedly, that's a positive for foreign investors in Chinese local currency bonds as hedging issues pose no major challenge or deterrent.

As global central banks have made available ample liquidity overall and dollar liquidity in particular, we expect the dollar to be stable in relation to the majors going forward, a key condition for more orderly markets.

What's going to happen to equities under more stable currencies and less dollar stress will depend on the US Congress to get its act together and, of course, any progress on the virus front.