The continuation of investors taking profit from the Dollar has allowed currencies around the APAC region to start the week positively against the Greenback. The Thai Baht led the way with gains beyond 0.60% while the Indian Rupee managed to strengthen just under 0.50% with the USDIDR falling marginally below the 70 psychological level, as the Rupee tries to regain composure after the currency hit an all-time low during trading last week.
The Chinese Yuan, Indonesian Rupiah and Malaysian Ringgit also managed to strengthen against the Greenback, with the Singapore Dollar and Korean Won also benefiting from some softness in the USD.
Investors around the region will be optimistically hoping for a positive outcome to the resumption of trade talks between China and the United States, which would inspire the much-needed risk appetite back into investor portfolios to allow emerging market currencies with the opportunity to recover from what has overall been a painful summer for the emerging markets.
The Dollar traded mostly lower against major currencies, with the Canadian Dollar being the only major currency at time of writing to have weakened against the Greenback. It is possible that market volatility will pick up later in the week as traders await new clues from the latest Federal Reserve minutes on Wednesday before attention turns to the gathering of central bankers for Jackson Hole at the conclusion of the week.
It can’t be ruled out that this weakness in the Greenback might just be temporary, especially when factoring in that the Dollar has been on an absolute tear up the charts in recent months. The Dollar reached a 13.5 month high as recent as last week and the outlook is that the Dollar rally has not quite ran out of steam yet.
New highs are likely to be supported by the consistency of the Federal Reserve towards monetary tightening and global market instability elsewhere.
News that officials from Beijing are heading to the US on Wednesday to restart trade negotiations is likely to provide some stability to the stock markets, however we shouldn’t expect too much from these talks as they are considered low level and will likely not translate into immediate decisions.
Expectations that Chinese authorities want to defend the psychological seven level in the Yuan to avoid capital outflows could translate into some positive momentum for the Chinese currency. The recent news that foreign exchange reserves rose 0.2% to $3.1179 by the end of July shows that the authorities in China have more than enough tools at their hands to control the pace of currency depreciation.
Gold has commenced the week mostly flat around $1185 after suffering the largest weekly drop since 2017. Although speculators and investors continue to remain negative on the yellow metal, I think the yellow metal has approached a level which seems attractive to long-term physical buyers. Stability in emerging market currencies, especially the CNY and INR will also provide a boost to gold prices.
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