The US Dollar is lower with some key developments indicating further near-term weakness, such as USD / CNY – a key currency pair not only for Asia but also for the G10 – breaking key technical support to 6, 4000 without obvious sign of opposition from the Chinese authorities, economists of the MUFG Bank report.
Downward pressure on the dollar building
“Ashore, the CNY hit its highest level against the USD since June 2018, encouraged by a benchmark PBOoC rate which indicates authorities are comfortable with this move. One of the implications of China’s complaint this week about excessive speculation in commodities markets is the belief that authorities have become more concerned about the threat of inflation and that the appreciation of the CNY will therefore collide with less opposition.
“Of course, the Chinese authorities have more freedom to allow the USD / CNY to break down given the overall relative stability of its currency on a trade-weighted basis.”
“China’s increased integration into world trade means that the CNY has an increasingly larger weight in trade-weighted indices of other currencies and, therefore, the movement of the CNY will reduce fears of further gains of currencies on a trade-weighted basis. “
“This USD / CNY breakout is significant and opens up the potential for broader USD weakness and at the margin signifies a little less ECB concern over the appreciation of the Euro.”