The US dollar is mixed. It is recouping some of yesterday’s losses against the euro and yen but is heavier against the other major currencies. Short-covering in the dollar-bloc that began yesterday has been extended, and sterling was aided by the 0.7% preliminary increase in Q2 GDP.
The rout in Chinese equities continued. Although trading was volatile, the immediate selling may have exhausted itself. The Shanghai Composite initially fell 5% before recovering in full and managed to turn 1% higher before finally closing 1.7% lower. The financial sector, led by brokerages, was firmer. Margin usage yesterday fell by the most in two weeks (~$3.4 bln or about 2%) while the securities regulator reaffirmed the government’s support for the equity market, contrary to market rumors.
Another encouraging sign is the index of Chinese companies that trade in Hong Kong fared better, losing only about 0.5%. Also, the Hang Seng itself and the larger bourses in the area, Korea’s Kospi and Taiwan’s Taiex managed to eke out minor gains.
The gains among the dollar bloc currencies seems largely about position adjustments, and partly drivenby the crosses. The New Zealand dollar is leading this week’s move by the bloc. It has gained 1.5% since the end of last week.The Aussie has gained a third and the Canadian dollar a fifth as much as the Kiwi.
The proximate spur may be RBNZ Governor Wheeler’s speech later today (Wednesday in New Zealand). The shorts are concerned that Wheeler may build on the recent RBNZ statement that had dropped references to the need for currency depreciation. He may recognize that the past currency depreciation may boost price pressures. This would be understood as a signal that there may be less rate cuts in the pipeline than many suspect. The RBNZ has unwound half of its mini-tightening cycle.
The New Zealand dollar is moving above its 20-day moving average. It has not finished the North American session about this average since the end of April. It is just below $0.6650 today. That said a move above last week’s high near $0.6700 would further lift the tone. The Australian dollar made a marginal new multi-year low (a little below $0.7260) but rebounded to flirt with yesterday’s high. A close above there (~$0.7325) could signal a potential key reversal. With oil prices still under pressure, the Canadian dollar is simply consolidating within yesterday’s ranges.
