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Dollarweakens most since 2009

China’s market under-performed on Friday after Beijing moved to keep a lid on the prices of raw materials.

(ATF) – As the number of American’s infected with coronavirus climbed above that in China, the dollar was on course for its worst week since 2009.

At one point in Asian trading on Friday, the US dollar index (DXY) hit a low of 98.8540, down more than 3.5% for the week. It rallied in late afternoon as US stock futures declined, but it would take another significant dollar liquidity squeeze for the greenback’s week to look a whole lot better.

Of course, it’s not only or not even mainly the coronavirus avalanche burying New York that’s causing the declines. Stress in cross-currency basis markets has eased greatly due to determined central bank actions and that has dominated other causes.

But the differential in coping with the coronavirus between the US and China is becoming an increasingly important factor.

Yuan central parity was set at 7.0427, stronger than Thursday, and the highest since March 18. In the course of the day, the Chinese currency weakened towards 7.08 as the DXY made a comeback on the US futures’ decline.

But this is all well within the CNY trading range of 7.05 to 7.11 since March 18.

Where do we go from here? I expect DXY to continue on a modest declining path as the dollar shortage eases further and demand decreases with US economic near-term prospects.

The longer term outlook? Being held hostage to dollar supply is not the greatest of experiences for markets and governments. It remains to be seen if China makes the most of this opportunity to enhance the RMB’s reserve status.


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