Photographer: Chris Ratcliffe / Bloomberg
Photographer: Chris Ratcliffe / Bloomberg
The dollar collapsed against currencies in Asian emerging markets on the first trading day of 2021, a sign of growing risk appetite among investors as economic data improved and vaccines were rolled out.
The Indonesian yuan and ringgit led the charge against the green dollar, with the Chinese currency rising to its strongest point since June 2018 after a Improving purchasing manager indices across the region reinforced sentiment. Assets from stocks to gold and cryptocurrencies also rose.
“Uncertainty is declining and the strong recovery in global growth should favor the rest of the world, so we believe the USD has some overvaluation to settle,” said Patrik Schowitz, global multi-asset strategist at JPMorgan Asset Management, which weighs less than the dollar. The weakness of the dollar is likely to be most notable “in the face of the emerging market currency complex, which should have a cyclical rise and is still relatively cheap.”
Investors put aside concerns about rising virus cases in Asia, betting that China will lead the region in economic recovery. From the yen to emerging market currencies, such as Goldman Sachs Group Inc. i BlackRock Inc. it is experiencing new gains against the dollar, which could pose challenges for the Asian politicianIt is concerned about the impact on its exports.
Read: The weak dollar proves Asian economies expect higher exports
“The issue of the weakness of the USD is likely to spread until this year and Asian currencies are well positioned to take advantage of them,” said Mitul Kotecha, chief strategist in emerging markets for TD Securities in Singapore. “Asian exporters have been the main beneficiaries of the unrest elsewhere, with an increase in exports of electronic and medical equipment.”
After climbing one record high in March, as the pandemic erupted, the Bloomberg Dollar Spot Spot index fell and ended the year 5.5% weaker, its worst annual decline since 2017. Speculative positions against the currency were at most in nearly a decade, according to data from the Commodity Futures Trading Commission in the second last week of December.
Emerging rally
The effect of the fall of the US currency is especially noticeable among Asian currencies when it started in 2021.
The land yuan surpassed the 6.5 level for the first time since June 2018, while the ringgit crossed the 4-level level against the dollar. The Indonesian rupiah jumped more than 1% to its strongest level since last February amid optimism for a faster economic recovery.
The Chinese yuan is likely to be a “prominent” beneficiary of a weaker dollar thanks to “performance erosion and twin deficits” weighing on the greenback, said Patrick Bennett, strategist at the Imperial Bank of Canada in Hong Kong.
The yuan’s yield advantage over the dollar, which is almost the broadest recorded, is also driving capital inflows. Reserve managers likely increased their holdings in the yen and yuan during the third quarter of 2020, according to a Goldman Sachs note, based on an analysis of International Monetary Fund data.
“China’s growth remains strong as the United States and Europe struggle to contain the virus, and this is helping the yuan extend its concentration into the new year,” said Ken Cheung, Asia’s chief foreign exchange strategist. Mizuho Bank Ltd. “We expect the yuan to gain even more from here, as China will lead the world in terms of economic recovery in the first half. The currency may test 6.3 in the coming months.”
Risk appetite also appears in other asset classes, with an indicator of global equities toward a maximum. Gold has risen to its highest level in almost two months, while digital currency Ether he hit a record Monday.
– With the assistance of Lilian Karunungan