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Dollar index inching closer to new cyclical high - MUFG

FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the US dollar remains on the front foot heading into this week with the dollar index inching closer to a recording a new cyclical high.

Key Quotes

“The release of the latest non-farm payrolls report, and upcoming ECB and OPEC meetings have the potential to have a significant impact on foreign exchange market direction heading into year end. The release of the latest non-farm payrolls report is expected to reveal that employment growth in the US continues to remain solid reinforcing market expectations that the Fed will begin to raise rates in December. The US dollar’s upward momentum would be reinforced if the report prompted the market to price a higher probability of the next rate hike coming in March of next year and more than two rates hikes being delivered in 2016.”

“US dollar strength was most evident overnight against the South Korean won which has been undermined by the release of the weaker than expected industrial production report for October. Asian currencies have been weakening modestly against the US dollar since October as USD/CNY has drifted back towards the 6.4000-level. Our analysts in Hong Kong expect USD/CNY to slowly grind higher in the year ahead until there is more serious debt restructuring in China.”

“The IMF’s executive board is scheduled to meet today and is expected to approve the inclusion of the renminbi into their SDR currency basket. Afterwards, in accordance with the earlier Staff guidance, the renminbi will undergo a process of further preparation before the yuan is operationally added to the SDR basket in October 2016.”

“Our analysts in Hong Kong do not expect the announcement from the IMF today that it has approved the inclusion of the renminbi into their SDR basket to materially impact their outlook for the renminbi in the year ahead. The release of the latest PMI surveys from China will also be in focus in the week ahead providing a signal as to whether the economy is slowing further heading into year end. We expect further economic weakness next year to keep downward pressure on Asian and commodity related currencies.”

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