Waiting for TINA to roll over
The US Dollar
On the surface, the USD seems destined not to crack – not because it’s stable, but because there remain few alternatives. Once investors find a non-US investment alternative that’s attractive, perhaps the worm turns on the Greenback. In the meantime, it’s going to be a grind being short US dollars but not extremely attractive to own them either with little carry to show.
All the principal components are in place for the eventual US dollar selloff; still, we need the first glint of a decisive turn in the Eurozone data or the *TINA index to roll over. Sure, Buffett was stopped out of the airline's trades, and it is alarming if you were bottom dipping hoping for him to double down. However, that’s more an industry-specific concern and not so bearish for the broader market, nor will it ring in a more broad-based USD selloff.
It was a reasonably quiet session on Monday in AUD and JPY blocs with risk failing to sell off further. Only once the market starts to get more embroiled in the trade war headlines, like they were in the year before the virus outbreak, will the AUDJPY and EURAUD have an excellent way to reprice lower.
The Australian Dollar
The market took a decent shot at the downside overnight and failed to make any progress. Now we have a market that’s likely bit short AUD (AUDJPY) going into RBA, and there’s risk of a squeeze higher. Oil prices have stabilized overnight, creating more of a feel-good story across the commodity landscape and putting a copper plank under AUDUSD 64 level while buttressing. Sentiment.
Although the US-China political imbroglio is brewing, the market is kicking the can down the road for a resumption in a trade war. With corporate America already in the throes of an economic collapse in demand, it seems unlikely that US-China tensions will escalate from threats to higher tariffs in the near term.
While risk traders are struggling to pivot full out bear, it’s challenging to be a seething pessimist when lockdowns are lifting; hence the AUD selloff ebbed.
The EUR is weaker this morning as it reversed last week's month-end squeeze, which lingered. But the Euro finally succumbed to recent correlation with risk sentiment. The immediate focus is the German court ruling on the ECB QE program; an adverse judgment might be an outside chance, but it’s hard to ignore the risk. So topside could be limited in the pair in Asia today.
The Japanese Yen
The market remains focused to see if Abe follows though with the U-turn in globalization as Japnaization will be suitable for the Yen, especially as US rates present little obstacle with minuscule negative carry.
The Chinese Yuan
The USD has opened stronger as geopolitical tensions continue to hang like a dark cloud over the Yuan. Smaller spats are emerging between China and Australia, China and Germany, and even China and Japan, which suggests China will remain in the geo spotlight – and not in a pleasant way.
Also, the weaker China PMI data running below trend – with China's primary export consumption economies not consuming – does not bode well for China's recovery. When factoring in the less globalized world during the initial phase of the post-pandemic recovery as economies internalize, it’s also providing poor optics for the Yuan bulls – and certainly not providing a suitable non-US dollar-denominated investment backdrop.
But it’s probably not worth chasing things higher either as it’s not in the PBoC’s best interests to let the Yuan sag to prevent the market from stoking trade war fears.
The Malaysian Ringgit
The Ringgit should trade on a more stable footing, supported by rising Brent crude oil prices which surged 4.4% on the day and which should also boost oil constituents on the KLCI following stellar gains on Exxon Mobile and Chevron Oil in the US stock markets.
However, regional optimism remains slightly tarnished by the coronavirus blame-game and the looming US Presidential election, which could prove to be s a toxic recipe for US-China relations. As Politics, Trade, Technology and Capital markets are the critical fissure points again.
* TINA = "There Is No Alternative" – there’s nothing else to invest in right now besides America because the innovation and attractive investment stories are all in the US
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies