Asian stock rally depresses USD in Asian trade
The USD traded heavily in Asian trade, as Asian stocks rallied strongly, with the Shanghai Composite Index recovering more than 1% towards noon. USDCNY fixing was marked lower for the first time in three days, aiding the positive sentiment. Even the beleaguered INR slipped below USD 60. Given the sheer size of market moves and extent of capitulation, it would take very little to trigger a short squeeze on risk. The consensus appears far too bearish, and value is starting to re-appear in Asian government bonds. Similarly, we think CNY blow-up pricing is overdone. The coverage of China’s money market tightness has become almost hysterical. The effect of a deliberate policy induced tightness (which the central bank is now beginning to soften) is being taken by some as a sign of system failure. China’s sovereign wealth fund, Central Huijin, has committed to buying shares in Chinese banks. Whilst we don’t think there is much upside in CNY, we think recent moves are overdone and today’s USD weakness reflects that.
Read the full report: FX Daily
BNP Paribas