Tuesday, October 19

Dollar firm, yuan slips as China Evergrande anxiety resurfaces


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SINGAPORE — The safe-haven dollar found

support just below last week’s peaks on Monday as renewed

concerns about China’s property sector and looming US labor

data put investors in a cautious mood.

The greenback scaled a 14-month high on the euro and a

19-month top on the yen last week as markets reckoned US

interest rates could rise ahead of global peers.

The euro dipped back below $1.16 and at $1.1598 is

not far from last week’s trough at $1.1563. The yen

was little changed at 111.065 per dollar. The offshore yuan

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fell about 0.3%.

Shares in embattled developer China Evergrande

were halted in Hong Kong, rekindling market nerves about the

possibility of contagion.

Evergrande said it requested a trading halt pending an

announcement about a major transaction, while unit Evergrande

Property Services Group said the announcement constitutes “a

possible general offer for shares of the company.”

Investors are concerned that a collapse at Evergrande could

hurt an already fragile Chinese economy and drag on global

growth. The US dollar index edged up 0.08% to 94.029.

“(There’s) a bit of nervousness,” said Moh Siong Sim,

currency analyst at the Bank of Singapore, even if most traders

still think Evergrande’s systemic risk can be contained.

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“It’s part of the wall of worry,” he said, which the market

could eventually “climb” if the COVID backdrop improves, growth

stabilizes and inflation concerns subside, but which for now is

keeping investor sentiment fairly dour.

Besides Evergrande, a Friday CNBC report which said US

Trade Representative Katherine Tai will announce on Monday that

China is not complying with US-China trade rules also provided

support to the dollar, especially against the yuan.

Chinese markets were closed for a holiday.

In the week ahead, the Reserve Bank of Australia meets on

Tuesday and is expected to keep policy steady. Across the

Tasman, a 25 basis point hike from the Reserve Bank of New

Zealand on Wednesday is priced in.

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The Australian dollar was about flat at $0.72685

and the New Zealand dollar was little changed at

$0.6941.

On Friday, US labor data is expected to show continued

improvement in the job market, with a forecast for 460,000 jobs

to have been added in September – enough to keep the Federal

Reserve on course to begin tapering before year’s end.

“The question is whether there is a number that alters the

Fed’s view on tapering its bond purchases in November, and what

a really weak or hot number means amid the backdrop of rising

stagflation fears,” said Pepperstone’s head of research, Chris

Weston.

“If US Treasuries find further buyers this week into

Friday’s US non-farm payrolls, the dollar may go on sale this

week.”

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Elsewhere economists polled by Reuters expect the cash rate

on hold in Australia until at least 2024, as the RBA has been

insisting it will be.

Swaps markets show a 97% probability of a rate hike in New

Zealand on Wednesday and a 96% chance of another one in

November.

Sterling, meanwhile, despite Friday gains, is still nursing

losses from a sharp drawdown last week when traders shrugged off

hawkish central bank rhetoric to focus on a sour outlook and the

risk of both higher rates and inflation.

The pound was about flat from last week at $1.3540.

“Investors are judging the UK by its whole suite of

fundamentals factors and movements in sterling suggest that many

are not liking what they are seeing,” said Rabobank strategist

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Jane Foley, as the currency erases early 2021 gains.

“The UK no longer has an advantage on the vaccine

front…and, while PM (Boris) Johnson likes to view Brexit as

‘done’, many businesses and commentators are only just starting

to evaluate its impact.”

================================================== ======

Currency bid prices at 0559 GMT

Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.1598 $1.1594 +0.03% -5.07% +1.1614 +1.1588

Dollar/Yen 111.0600 111.0300 +0.00% +7.50% +111.1100 +110.9300

Euro/Yen

Dollar/Swiss 0.9305 0.9307 +0.01% +5.21% +0.9311 +0.9293

Sterling/Dollar 1.3539 1.3543 -0.02% -0.89% +1.3577 +1.3534

Dollar/Canadian 1.2627 1.2643 -0.14% -0.86% +1.2654 +1.2614

Aussie/Dollar 0.7269 0.7268 -0.01% -5.53% +0.7283 +0.7250

NZ 0.6941 0.6943 -0.04% -3.36% +0.6952 +0.6927

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook. Additional reporting by Kevin

Buckland.

Editing by Shri Navaratnam)

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