Mikkel Rosenvold
5 weeks ago

Andreas Steno: More USD Strength is Coming

Chinese GDP growth outstripped expectations at 5.3%, yet this positive indicator was dimmed by broader concerns over Asian currency devaluations and their global market implications.
Dilok Klaisataporn / Shutterstock.com
Dilok Klaisataporn / Shutterstock.com

Chinese GDP figures for the year have surpassed the expected 5.2%, coming in at 5.3%. Despite these strong figures, Asian markets remain bearish, primarily due to concerns about the USDCNY exchange rate exceeding 7.10, seen as a negative indicator for future financial stability in the region.

CEO of Steno Research, Andreas Steno, notes the ongoing weakness in Asian currencies, emphasizing that such conditions are typically beneficial for commodities like energy and precious metals which act as hedges against currency depreciation.

The rise of the USD against the CNH (Chinese Yuan offshore) correlates with stronger performance in sectors like energy, industrials, and materials compared to the broader equity market, while utilities and real estate lag.

This dynamic underscores a broader narrative of USD strength fueling certain market segments. This scenario is captured in Steno's analysis, highlighting the potent combination of a strong USD and a robust commodities market as critical areas of focus for investors.

Recent sessions have shown commodities performing well alongside a strengthening USD, suggesting a strategic buying opportunity for the currency. According to Steno, the European Risk Management community is expected to escalate their USD acquisitions, driven by these trends.

On the flip side, exposure to markets like South Korea has been challenging due to depreciating Asian currencies, with the market eagerly awaiting intervention from authorities in Japan and China to stabilize these trends.

Moreover, the article touches on liquidity concerns, illustrated by recent spikes in the General Collateral (GC) repo rates for U.S. Treasuries, which have subtly influenced money market dynamics by drawing funds away from the Federal Reserve’s Overnight Reverse Repurchase Agreement (ON RRP) facility.

Finally, while the article provides a forecast for Canadian CPI, expected to show a significant monthly rise, the focus remains squarely on the interplay between strong USD trends and their influence on commodities and global markets, as outlined by Steno's expert analysis.

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