FXStreet (Delhi) – Kit Juckes, Research Analyst at Societe Generale, suggests that among the other FX drivers, China is the really big factor, still, as the USD/CNY fix edges slowly higher.
Key Quotes
“We still expect China’s policy makers to look for a modest depreciation against the dollar, but we still see clear risks as others react. Will FX reserve erosion accelerate now that the move is more clearly in evidence? Falling commodity prices add to terms-of-trade pressure on a wide range of countries (though perhaps none more than Saudi Arabia at this point in time), while downgrades to credit ratings in both South Africa and Brazil add to nervousness and, potentially, to capital flows.”
“We have proposed a range of trades to benefit from the pressures coming from Chinese FX policy: Long USD vs TWD and KRW; long USD/CNH call spreads; and long CAD/CNH (which isn’t the pick of the bunch so far as oil prices tumble but which I like long term).”
“Away from China trades, there is appeal in positioning for an earlier bottoming out in oil prices than in industrial metals, since at least in the oil market it seems clear that supply will fall, demand rise and the gap between the two shrink over time, even if the near-term danger of excess stocks is still clear. A weaker Chinese economy won’t revive demand for industrial metals any time soon, and producers’ devaluations have sustained domestic-currency revenues, somewhat reducing pressure to cut supply. The AUD may have fallen a long way against the USD, but AUD/NOK is an attractive long-term short here.”
“We remain bearish GBP/USD as UK and US monetary policy diverges. Soft UK wage growth data released this week will allow the MPC to remain dovish and makes us comfortable having GBP/USD shorts, which would gain a decent tailwind if ‘Brexit’ becomes a major market talking point in the new year. And finally, we’re bullish SEK. Shorts in EUR/SEK or CHF/SEK are attractive as Swedish growth prospects will eventually outweigh a fixation with keeping the currency down.”
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