Photographer: Chris Ratcliffe / Bloomberg
Photographer: Chris Ratcliffe / Bloomberg
The dollar sank against emerging market currencies in Asia on the first trading day of 2021, a sign of rising risk appetite among investors as economic data improved and vaccines were launched.
The Indonesian yuan and ringgit have led the charge against the dollar, with the Chinese currency rising to its strongest since June 2018, after a A few improvements in procurement managers’ indices across the region have strengthened sentiment. Assets from gold stocks and cryptocurrencies also rallied.
“Uncertainty is waning, and the strong recovery in global growth should benefit the rest of the world, so we believe the USD has some overvaluation to solve,” said Patrik Schowitz, global many-asset strategist at JPMorgan Asset Management, which is underweight to the dollar. The weakness of the dollar will probably be the most notable “compared to the currency complex of emerging markets, which should have a cyclical growth and is still relatively cheap”.
Investors are worrying about rising numbers of virus cases in Asia, saying China will lead the region in economic recovery. From yen to emerging market currencies such as Goldman Sachs Group Inc. and BlackRock Inc. there are new gains against the dollar, which can be challenging for Asians political decision makerI am concerned about the impact on their exports.
Read: The weak dollar tests Asian economies hoping for higher exports
“The issue of the USD weakness is likely to expand this year, and Asian currencies are well placed to take advantage,” said Kotecha Myth, a senior emerging market strategist at TD Securities in Singapore. “Asian exporters have been the main beneficiaries of the disease elsewhere, with exports of electronic and medical equipment increasing.”
After climbing a record in March, as the pandemic escaped, the Bloomberg Dollar Spot index fell and ended the year 5.5% weaker, the worst annual decline since 2017. Speculative positions against the currency have been around for almost a decade, according to data from the Commodity Futures Trading Commission for the second week of December.
The emerging rally
The sliding effect of the US currency is particularly noticeable among Asian currencies as 2021 begins.
The terrestrial yuan surpassed the 6.5 level for the first time since June 2018, while the ringgit passed the 4th level against the dollar. The Indonesian rupiah jumped more than 1% to its strongest level since February last year amid optimism for a faster economic recovery.
China’s yuan is likely to be a “remarkable” beneficiary of a weaker dollar due to “yield erosion and twin deficits” affecting the dollar, said Patrick Bennett, a strategist at the Imperial Canadian Commercial Bank in Hong Kong.
The advantage of the yuan’s yield against the dollar, which is almost the highest recorded, also determines capital inflows. Reserve managers probably increased their yen and yuan holdings in the third quarter of 2020, according to a Goldman Sachs note, based on an analysis of data from the International Monetary Fund.
“China’s growth remains strong as the US and Europe struggle to fight the virus, and this is helping the yuan expand a rally in the new year,” said Ken Cheung, Asia’s chief foreign exchange strategist at Mizuho Bank Ltd. “The yuan is expected to gain even further from here, as China will lead the world in economic recovery in the first half. The currency may test 6.3 in the coming months.”
Risk appetite also occurs in other asset classes, with a global stock gauge moving to another level. Gold rose to its highest level in almost two months, while the digital currency Ether reached a record Monday.
– With the assistance of Lilian Karunungan