Now the question today is of course what can stop this relentless rise of
the dollar itself. It is just against everybody up apart
from those two in the major sort of section.
Thanks for. I mean we've done some work around
what's driven the dollar rally year to date and it's a very simple answer.
It's basically higher U.S. rates lower equities higher energy
prices because the U.S. is self-sufficient.
And also we've got China because the U.S.
has the least export exposure to China as a percentage of GDP.
So I think to ask the question around you know can the dollar peak anytime
soon. Are any of these factors really
reversing. I think maybe oil prices are coming off
a bit but otherwise you know the Fed is still hawkish.
Equities still under pressure. China still weak.
I do think by the time we get to year end we could see a bit of an inflection.
And that really depends on the Fed's reaction function.
I think when the Fed funds rate it does say about three and a half percent
closer to 4 percent. They might shift from inflation
autopilot to data dependence growth data dependence which I think would mark a
big in the dollar. But we clearly are not there yet.
How much of a driver is what we're seeing in Europe as well.
The fundamentals don't look good. And this energy crisis as well is that
driving moves in the dollar more short. I mean you just have to look at
yesterday right. The ECB was hawkish no matter what you
cut it. And the euro weakened.
And that's very much like what we've seen for the pound for the Korean War
and for the New Zealand dollar where central banks have been hawkish there
hiking rates but into much weaker growth.
The only difference with the euro is that the policy rate is still below
neutral. But I think yesterday's price action
clearly told us that you know hiking rates is not going to be sufficient to
support the euro for the time being where it is maybe close to sufficient.
Is the RBA. And then they've started to say we're
maybe close to neutral. It's probably more growth data that
they're looking at right now. Was that was that a pivot from the RBA.
It seemed like the governor's speech definitely seemed like a bit of a pivot.
And we do think from the October meeting onwards they'll shift to 25 basis point
increments. It's a gutsy call.
I mean they're probably the only central bank that's kind of saying we're going
to slow the pace moving forward. And it's gutsy because the policy rate
has just got to neutral whereas I think most of the sandbags are saying neutral
it's not good enough. We need to be at restrictive.
We need to be above neutral. So it's an interesting pivot from the
RBA. It did weigh a little bit on the Aussie
yesterday but I think it really depends on how the inflation numbers print over
the coming months. What do the currencies in this part of
the world I mean how much is it all dependent on whether they are net
commodities importers versus those which are exporters.
And depending on her current account you know different fortunes for different
currencies naturally. It's critical like the import side of
things we've been talking about for a while because oil and gas price have
been going up. Oil prices are now coming down but gas
prices still high. But what I think is far more important
from a trade perspective is the slowdown in net exports.
This week we've had China and Taiwan report exports weaker than expected.
If you actually look at Asia export data surprises they've been positive since
2020. And my measure of these export data
surprises has only just reached close to zero.
But I think this is a trend that's going to continue.
If Europe's in recession the US is slowing down.
China is still weak. Asia's export numbers are going to look
a lot worse over the coming months. I think Asian currencies you might see a
bit of a relief in the short term. But generally I view as Dollar Asia
continues to move higher because of this export slowdown over the coming months.
We are just hearing some lines now crossing when it comes to Japan.
The finance minister Shinichi Suzuki once again talking about these moves and
yen abrupt moves and affects undesirable.
Concern about excessive moves and affects watching affects move with great
interest. Yeah it is.
IBEX moves continue. Can take various steps.
Can. Can.
Well can.
And will they. Are we likely to see any response from
Japan today. So I sense a lot of skepticism here.
And I think yesterday after that after that joint meeting
on the markets at all. There was no joint statement like we saw
in June. So this is not a very aggressive
response. However I would say what I heard from
Canada in particular yesterday his comments were definitely stronger.
The strongest we've seen so far. So he talked about fundamentals not
justifying the moves in the yen. I think that's a pretty important
comment to have really talked about fundamentals and the justification for
the yen move. And actually I think part of the reason
they didn't release a statement as you know they couldn't have been as
aggressive in a written statement. Right.
And if you go back to look at the June statement everything that Columbus said
yesterday was a lot stronger than what they had said back in June.
So I think you know of course I know there's the skepticism on not just you
but affect traders as well. And we need to see action.
But I do think we're definitely intervention.
Watch. No it's been a very sharp move.
The volatility is higher. The rhetoric is stronger is definitely
something we need to watch out for. DAX.
We had said Fisher over embraces the other day.
Saying that perhaps many people within the cabinet itself were secretly happy
about the yen's weakness. Right.
The cabinet. I'm not sure.
Bank of Japan for sure. Like Kuroda and Doug Yang's Daphne.
Anybody going to cause inflation. I mean this is the whole point of yield
curve control. So why would they fight against it.
The cabinet of course have a lot of different interests.
I mean obviously the importers are suffering.
There could be an energy problem later in the winter.
So wonderful. Well one more step towards direct
intervention is they have to convince it's not just a unilateral decision on
the part of Japanese. Right.
They have to convince the Treasury to. Americans it's a good decision and you
know how probable is that too. So we made that point for quite a go.
We know them off. You know Apple will need some sort of
tacit approval from the Treasury to intervene.
We'll never know if that actually happens.
But of course I think you know the more volatile the end gets the week.
I mean this has been mainly a yen depreciation like the euro hasn't
weakened as much and so forth. But I wouldn't say intervention is our
baseline scenario right now for party because you know the US is probably
perfectly happy with the strong dollar. But the longer this continues obviously
we get closer to that intervention risk based case for a dollar China or still
higher. I mean we have a forecast of seven point
one. It's probably too far out.
But you know we could get there sooner rather than later.
The key thing with China is the CFS basket.
Okay. You know clearly with the fixed things
we know the BBC is trying to contain the volatility of dollar CNY but the CFS
basket is still too strong. And China's exports.
Net exports is going to be a drag on growth in the second half of the year.
So I've used the CFS basket needs to be below 100 which probably means all the
it needs to be above 7.