Forex Comment Apr 01

Trump 'pain' forecast puts renewed bid into dollar

Chinese SME PMI was only bright note in subdued day with talk of rate cuts adding to jitters 

by Uwe Parpart

(ATF) – US stock futures nosedived after Trump spoke of two more weeks of heightened pain at his daily COVID-19 briefing Tuesday. The rout has continued since and Dow futures were down 3.26% at 9pm HK time.

Renewed financial stress engendered renewed dollar strength; the DXY was up 0.61% to 99.6520 at the end of the Asian trading day.

In line with dollar strength, the Chinese currency, which had been set at a central parity rate of 7.0771 at the morning fixing, weakened to 7.10 at 9pm HK time. 

As we have pointed out repeatedly, we're watching a de facto yuan dollar peg.

Some good economic news from the Caixin PMI, which focuses on SMEs, confirmed the upbeat reading of the large official Chinese, mainly state-owned-enterprise PMI yesterday. Modest Chinese recovery allows the central bank to cozy up to the greenback without fear of negative consequences.

One note of caution: We've learnt from sources we trust that further Chinese rate cuts in various categories are coming. This might portend a CNY breakout above the 7.05-7.10 range.