Reporter: Cai Ding Editor: Lan Suying
On Tuesday, April 16, Beijing time, the U.S. dollar index broke through the 106 integer mark, hitting a new high since November last year, boosted by the larger-than-expected U.S. retail sales data for March and a surge in safe-haven demand.
Under the weight of the strong US dollar, many emerging market currencies in Asia fell sharply on the day, and emerging market equity benchmark indices have erased all of their year-to-date gains. On the same day, the rupiah fell to its lowest level in four years, forcing Bank Indonesia to sell interventions, the won hit a 17-month low against the dollar, the Indian rupee hit a record low, and the yen fell below the 154 mark......
In addition to the currency market, the Asia-Pacific stock and bond markets also suffered a sell-off. Emerging market equity benchmarks have erased all of their year-to-date gains. Meanwhile, Australian and New Zealand bond yields rose, with Japan's 2-year yield rising as high as 0.255% at one point, the highest since 2009.
Themistoklis Fiotakis, global head of FX and emerging markets macro strategy at Barclays, noted in an email to the National Business Daily that "the recent shift in market expectations for the Fed's interest rate cut has boosted the dollar." But in our opinion, there is more room for development on the theme of a strong dollar. Escalating geopolitical tensions/rising oil prices add to the dollar's short-term appeal, and if Trump wins, the mid-term policy of Trump will also bring expectations of a strong dollar. ”
A number of Asian market currencies came under pressure: the Japanese yen fell below the 154 mark, the won fell below 1400......
A number of emerging market currencies in Asia suffered a "storm" on Tuesday. A global measure of emerging-market currencies fell to a year-to-date low on Tuesday, according to Bloomberg data.
Image source: Bloomberg
The rupiah was one of the sharpest Asian currencies on the day, falling below the 16,000 rupiah level per dollar for the first time in four years, forcing Bank Indonesia to intervene to support the rupiah. Bank Indonesia is scheduled to hold an interest rate meeting on April 23~24, and the market is widely expected to start cutting interest rates later this year. Recently, the rupiah has also depreciated sharply against the backdrop of current account deficits and safe-haven capital outflows, and if this situation continues, Bank Indonesia may have to raise interest rates to prop up the country's currency.
The South Korean won fell to a key level of $1,400 against the dollar on Tuesday, hitting a 17-month low. South Korea's foreign exchange authorities verbally intervened in the exchange rate on the same day. Officials from South Korea's Ministry of Finance and the Bank of Korea said in a joint statement that "we are closely monitoring foreign exchange trends and supply and demand with particular caution, and excessive unilateral volatility is undesirable for South Korea's economy." ”
In fact, so far this month, the won has led the decline of the world's major currencies, with a cumulative decline of nearly 4%. Year-to-date, the won has fallen nearly 9%. South Korea is a major oil importer in Asia, and tensions in the Middle East have added to the downward pressure on the won.
The Indian rupee also fell to a record low on Tuesday. Still, the Indian rupee remained one of the best-performing emerging market currencies on Tuesday, falling much less than the Indonesian rupah and the South Korean won.
The Malaysian ringgit is also near its lowest level since 1990. The day before (April 15), Bank Malaysia also said that the bank is ready to intervene in foreign exchange at any time.
The reporter of "Daily Economic News" noted that the yen, which has fallen to a 34-year low, did not escape the pressure of the strong dollar on Tuesday. On the same day, USD/JPY hit a new intraday high of 154.614 per dollar, which was already higher than the 153 level that the Bank of Japan would intervene in. Traders are already preparing for USDJPY to break above 160.
Later this week, Bank of Japan Governor Kazuo Ueda and Finance Minister Shunichi Suzuki will attend the G7 Finance Ministers and Central Bank Governors Meeting, and markets are now closely watching Kazuo Ueda's speech in Washington on Friday (April 19) local time.
In addition to the currency market, the Asia-Pacific stock and bond markets also suffered a sell-off.
The Nikkei 225 index closed down 1.9% on Tuesday, South Korea's stock index fell more than 2%, the A-share Shanghai Composite Index fell 1.65%, and the emerging market stock market benchmark index has also erased all of its year-to-date gains, the data showed. Meanwhile, Australian and New Zealand bond yields rose, with Japan's 2-year yield rising as high as 0.255% at one point, the highest since 2009.
Why is the strong dollar coming?
Behind today's "storm" in Asian currency markets is the continued frustration of Fed rate cut expectations and the geopolitical situation in the Middle East spurring safe-haven demand, leading to a resurgence of strong US dollars.
Bloomberg reported that in addition to emerging market currencies in Asia, market attention will turn to currencies such as the South African rand, Polish zloty and Israeli sheqel as Western markets open.
The report pointed out that geopolitical tensions and stronger-than-expected retail sales data in the United States in March indicate that the market is currently repricing the Fed's delay in cutting interest rates, which is also the direct reason why the dollar index recorded five consecutive positive days on the daily line.
Data released on Monday showed that U.S. retail sales rose strongly by 1.1% month-on-month in March, the largest month-on-month increase since January 2023. In addition, retail sales growth for January and February was also revised upward. In fact, the U.S. dollar index had already risen sharply before the release of the March retail sales data. Last week, the dollar index posted its biggest weekly gain in nearly two years after US March CPI data raised bets that the Federal Reserve will keep interest rates higher for longer. In addition, Iran's counterattack against Israel over the weekend further stimulated safe-haven buying of the US dollar.
Image source: Investing.com
Themistoklis Fiotakis, global head of FX and emerging market macro strategy at Barclays, noted in an email to the National Business Daily for comment, "Market expectations for a Fed rate cut are now on pause and awaiting more evidence of a sustained decline in U.S. inflation, and such a shift in monetary policy expectations has boosted the dollar." But in our opinion, there is more room for development on the theme of a strong dollar. Escalating geopolitical tensions/rising oil prices add to the dollar's short-term appeal, and if Trump wins, the mid-term policy of Trump will also bring expectations of a strong dollar. ”
Lee Hardman, a foreign exchange analyst at Mitsubishi UFJ Financial Group, also pointed out in an email to the reporter of the "Daily Economic News" that the market further postponed the Fed's interest rate cut expectations after the release of stronger-than-expected US retail sales in March, which contributed to the strengthening of the dollar.
Separately, the Federal Reserve Bank of Atlanta's GDPNow index showed that US GDP growth was expected to be 2.8% in the first quarter. The U.S. economy continues to grow strongly, putting additional upward pressure on interest rates and the U.S. dollar. The yield on the 10-year Treasury note also hit a new year-to-date high of 4.66% on Monday, up 88 basis points from its low late last year. Lee Hardman added.
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National Business Daily