Indications that the market is turning more negatively towards the Greenback would represent very positive news for emerging market currencies, in particular those having received a pounding over the past couple of months in response to prolonged dollar strength. This can be seen during trading today with the Thai baht, Chinese yuan, Philippine peso, Indonesian rupiah, Malaysian ringgit and Indian rupee all strengthening.
The exact catalyst behind why the dollar is weakening is not easy to point out, but the main contender is that fading fears over trade tensions are providing traders with a reason to take profit on dollar positions that have been building for months. Another round of reassuring comments from authorities in China indicating that the yuan will not be used as a weapon during-trade tensions has also been looked upon positively by the market.
It does go without saying overall that the prospects for more potential weakness in the dollar moving forward would of course be widely welcome news for a long list of currencies across the globe.
As we head into the conclusion of the trading week the South African rand has benefited the most from weakness in the Greenback. The Rand has strengthened above 4 per cent over the past five days, with traders looking very positively on the news that the South African Reserve Bank (SARB) was able to leave monetary policy unchanged yesterday. The news earlier this week that inflationary pressures in South Africa unexpectedly eased in August allowed the SARB to maintain resilience and not follow the recent path of both the Russian and Turkish central banks to raise interest rates, which was a move needed in both the cases of Russia and Turkey to ease inflationary pressures and defend both the ruble and lira from further weakness.
It is not surprising that the Turkish lira remained volatile and has shifted between both gains and weakness in the aftermath of Turkey’s finance minister announcing his plan to combat the lira currency crisis. The market, as you would expect, has looked negatively upon the announcement that there has been a sharp downgrade in GDP growth forecasts for both 2018 and 2019. Growth is now expected to slow below 4 per cent this year and narrowly above 2 per cent in 2019, which is sharp contrast to the overall growth of 7.4 per cent that the economy enjoyed last year.
I would keep a very close eye on the British Pound over the upcoming sessions despite the news that the Cable has rallied to its highest levels in nearly three months. Traders appear to have repositioned in recent sessions that there will eventually be a breakthrough in the UK and EU negotiations over Brexit. However, the latest summit in Salzburg failed to result in a positive outcome and the rally in the Pound could fall like a house of cards if markets begin to reprice into the market a potential hard-Brexit eventuality.
