The traditional thinking is that FX strength somewhere means weakness somewhere else and the winners and losers will balance out. Like all things in economics, that may be true in the long run but it means more pain that prosperity in the short term. Ashraf issued a new Premium trade on USDJPY, with 2 essential charts capturing a multi-year rarity.
isk aversion returned with a vengeance Tuesday as US stocks fell 3%, oil dropped 10% and the yen surged. One factor was that the ISM manufacturing survey fell to the lowest since May 2013, missing the consensus estimate by 1.6 points. That probably doesn't come as a surprise because at the moment, US manufacturing is one of the 'losers' in the global FX war.
What isn't in the textbook is why Canada posted a contractionary PMI. The RBC survey fell to the lowest since April at 49.4 from 50.8 and the country entered a recession with a second-consecutive GDP report in contraction. That's despite a 25% decline in the loonie.
Another major US trading partner is Mexico but the latest PMI there was at the second lowest of the year. Yesterday, China's unofficial PMI from Caixin hit the lowest since the crisis.
What the models don't account for is the difficulty in switching suppliers, reorienting investment and plain reluctance to change. The US dollar rally (and effective yuan rally alongside it) have created a 'great reshuffling' of global production and at the same time the collapse in commodity prices has changed the mathematics of investment.
Eventually, low cost, well-located manufacturing centers with an abundance of labour like Mexico will win the spoils of the strong US dollar but not before months of pain.
isk aversion returned with a vengeance Tuesday as US stocks fell 3%, oil dropped 10% and the yen surged. One factor was that the ISM manufacturing survey fell to the lowest since May 2013, missing the consensus estimate by 1.6 points. That probably doesn't come as a surprise because at the moment, US manufacturing is one of the 'losers' in the global FX war.
What isn't in the textbook is why Canada posted a contractionary PMI. The RBC survey fell to the lowest since April at 49.4 from 50.8 and the country entered a recession with a second-consecutive GDP report in contraction. That's despite a 25% decline in the loonie.
Another major US trading partner is Mexico but the latest PMI there was at the second lowest of the year. Yesterday, China's unofficial PMI from Caixin hit the lowest since the crisis.
What the models don't account for is the difficulty in switching suppliers, reorienting investment and plain reluctance to change. The US dollar rally (and effective yuan rally alongside it) have created a 'great reshuffling' of global production and at the same time the collapse in commodity prices has changed the mathematics of investment.
Eventually, low cost, well-located manufacturing centers with an abundance of labour like Mexico will win the spoils of the strong US dollar but not before months of pain.
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.