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All quiet on the FX front

"The market is dancing on a knife-edge," said a trader at a Chinese bank, noting the market has been carefully testing the authorities' patience with a strengthening yuan. Photo: Reuters.

(ATF) Even as US stocks dropped Wednesday, the Cboe Volatility Index (VIX) barely moved, staying near 40 after hitting close to 85 in mid-March. Similarly, the ICE BofA MOVE Index of US Treasury yield volatility was quiet, frozen around 70 after hitting levels above 160 in early/mid March.

US stock futures were up at 6pm HK time along with Eurostoxx, but we expect volatility to remain subdued when US trading opens – provided the bottom doesn’t fall out on employment when the new unemployment claim numbers come out.

For currencies, notably the dollar, low volatility in stocks and bonds means no reason for significant changes in the exchange rates.

The dollar index (DXY) registered some modest gains in Asian trading and stood at 99.9100 at 6pm, rising a bit in response to a marginal increase in US Treasury yields.

The Chinese currency is steady with the greenback. The PBoC set morning parity modestly higher than Wednesday, at 7.0714. Nothing much happened in the course of the day to upset the yuan; CNY was trading at 7.0758 at 6pm.

Friday will see Chinese quarterly and monthly economic data, including 1Q GDP. Obviously, severe losses are priced in. As we noted above on US unemployment figures, unless the bottom falls out totally, Chinese data will not move the yuan by much.


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