Forex Comment Apr 07

Slowing coronavirus spread + equity surge = dollar retreat

PBoC sets stronger parity range as trade resumes after holiday break  

by Uwe Parpart
Slowing coronavirus spread + equity surge = dollar retreat

(ATF) – Monday's US equities surge followed by strong Asian markets and US Futures gains on Tuesday are causing the US dollar to beat a hasty retreat. The dollar index (DXY) was down 0.52% to 100.1640 by 5pm HK time and remains under pressure.

Over the past several months, the DXY has functioned as the most reliable overall financial risk indicator, a higher dollar signalling higher dollar demand and financial stress, and vice versa.

The dollar's loss was the Chinese yuan's gain.

As trading in the onshore currency resumed Tuesday after the Qingming Festival holiday, the People’s Bank of China set CNY central parity at 7.0939, modestly stronger than on April 3, and the yuan continued to gain strength through most of the Asian trading day, to 7.0588 by 5pm HK time, mirroring the USD's loss and sitting near the lower (stronger) end of the 7.05 - 7.10 preferred trading range since March 18.

We see no reason to expect that range to be abandoned in the near term: the Chinese economy appears to be on a steady recovery path with an estimated 90%-95% of workers having returned to the workplace and no immediate prospect for renewed outsize dollar strength as the corona virus continues a slow retreat.