Dollar Slips to 27-Month Low, While Gold and Stocks Strengthen

August 18, 2020

The dollar dropped overnight by 0.5% against the peso and sterling, 0.4% relative to the yen, 0.3% vis-a-vis the loonie, 0.2% versus the Australian dollar and 0.1% against the Swiss franc and yuan. The U.S. currency in trade-weighted terms touched more than a 2-year low.

Recent selling pressure on the dollar has been driven by short-term capital movements. Late yesterday, the U.S. Treasury reported June capital flows. There were net long-term inflows exceeding $100 billion for a second straight month. However, the more comprehensive aggregation of long- and short-term capital has transitioned from a $333.8 billion net inflow in March to an inflow of $116.9 billion in April and net outflows of $15.9 billion in May and $67.9 billion in June. This deterioration parallels the progressive deterioration of U.S. Covid-19 cases and deaths vis-a-vis pandemic trends elsewhere.

Gold is back above $2,000 per ounce and up 0.8% on the day. WTI oil slid 0.4%, however.

The ten-year U.S. Treasury and Japanese JGB yields dipped a basis points, and their German and British counterparts are holding steady.

Stock markets are mostly higher including Those in India (1.3%), New Zealand (1.5%), Italy (1.0%), Germany, Indonesia and Spain (each up 0.9%), Australia (0.8%), and the U.K. and France (0.6%). The few exceptions include drops of 2.5% in South Korea, 0.7% in Taiwan, and 0.2% in Japan.

Minutes from the recent Reserve Bank of Australia Board meeting that held its Official Cash Rate at a record low of 0.25% express a need to retain the accommodative monetary stance for as long as needed, that is until clear advances are achieved toward restoring full employment and the central bank’s inflation target, but also evidence satisfaction with the current policy settings. It would take fresh deterioration in the economy to warrant additional easing, and note is made that Australia’s economy has begun to recover after a downturn that was not as deep as feared.

Indonesia experienced a $3.263 billion trade surplus last month, the third black-ink balance in a row. And the current account deficit of $2.896 billion last quarter was the smallest in 13 quarters and equal to 1.2% of GDP versus a deficit equaling 3% of GDP a year earlier.

Malaysian consumer prices in July were 1.3% below their year-earlier level, which was the least deflationary since March. The year began with January consumer prices 1.6% above their year-earlier level before the pandemic.

The U.S. Democratic Party National Convention kicked off as a Zoom event featuring a wide array of comparatively short speeches by leaders from all wings of the party, ordinary citizens of all ages, and even some Lincoln Republicans. President Trump, meanwhile, raised tension with China.

U.S. housing starts and building permits data will be released later this morning.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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