Evergrande nervousness drives down FX risk, dollar gains on security supply

A US dollar bank note is seen in this illustration taken May 26, 2020. REUTERS / Dado Ruvic / Illustration / File Photo

  • Yuan moves from 3-month high to 3-week low due to Evergrande worries
  • Dollar index at 4 week high on security offer
  • Impact on risk / commodity currencies

LONDON, Sept. 20 (Reuters) – The Chinese yuan hit a nearly three-week low on Monday, dragging other risky currencies and commodities as concerns over the creditworthiness of property developer Evergrande spooked financial markets , while the safe haven dollar rose.

It was not until last Thursday that the yuan hit its highest level in three months at 6.4275 to the dollar. The currency’s sharp decline on Monday follows warnings from Chinese regulators that Evergrande’s insolvency could trigger greater risks in the country’s financial system if it is not stabilized.

Evergrande has worked hard to raise funds to pay its many lenders, suppliers and investors. A deadline for the company to pay interest to creditors is looming this week. Read more

The yuan’s fall to 6.4682 yuan per dollar – its lowest since September 1 – also weighed on the Australian dollar, New Zealand dollar and Norwegian krone, all of which hit near lows. since three weeks ago.

The Japanese yen strengthened 0.2% to 109.72 yen to the dollar, although that was not enough to prevent the dollar index from benefiting from a safety offer.

The British pound, which also correlates with broader risk sentiment, fell 0.5% to a four-week low at $ 1.3662.

Faced with a basket of peers, the greenback appreciated nearly 0.2% on the day and to its highest for four weeks. Across the Atlantic, the euro was down 0.15% on the day to $ 1.1707 by 10:41 GMT.

“The forex markets start the week on a nervous basis, where the biggest threats are faced with the struggles of Chinese real estate developer Evergrande and the Federal Open Markets Committee (FOMC) meeting on Wednesday,” said Francesco Pesole, G10 strategist. FX at ING.

“Today also sees a close Canadian election, where failure to get a clear result may not help an already under pressure CAD as the commodities complex feels the pressure.”

The Canadian dollar, also a commodity currency that correlates with risk sentiment, hit its lowest level in four weeks at C $ 1.2815 per dollar.

Polls for Monday’s national election in Canada indicate an advantage for incumbent Prime Minister Justin Trudeau, but a likelihood that he will remain the leader of a minority government. Read more

CENTRAL BANK FOCUS

Looking forward to this week, as many as a dozen central banks are holding meetings, but traders are mostly focused on the Fed, where expectations of a bearish signal are keeping the dollar’s supply going.

The US central bank concludes a two-day meeting on Wednesday and the consensus is that it will stick to big plans for cuts this year, but will not provide details or a timeline for at least a month.

However, creeping US yields – which rose for the fourth straight week to 10 years last week – point to risks of hawkish surprise or a shift in projections to show interest hikes as early as 2022.

“We suspect that the Fed may be slightly hawkish in the sense that… (it) is likely to increase its ‘points’, signaling a rate hike next year and for PMIs to continue declining a bit. this is the case, the euro / dollar will likely end the week lower too, “said Mikael Olai Milhøj, chief analyst at Danske Bank.

Among other major central banks, the Bank of England is expected to leave policy parameters unchanged, but traders see potential for gains in the pound if the bank adopts a hawkish tone or if several members call for a reduction in purchases of active.

No decidedly accommodative Bank of Japan policy changes are expected on Wednesday, but a day later, Norges Bank is expected to become the first central bank in the G10 to hike rates.

“The phasing out of central banks around the world from their emergency stimulus measures is likely exacerbating China’s risk-taking transactions,” said Raffi Boyadjian, senior investment analyst at online broker XM.

Cryptocurrencies fell, bitcoin down more than 5% to $ 44,587 and ether down 5.6% to $ 3,139.

(This story corrects the yuan rate and milestones)

Reporting by Ritvik Carvalho Editing by Gareth Jones and Pravin Char

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