May 10, 2022 7:00 AM +05:00
The People’s Bank of China (PBOC) allowed the Yuan to weaken to its lowest level since November 2020 on Monday. USD/CNY is now closing in on levels above 6.7300, well up from 6.3600 seen 3-weeks ago.
The world’s second-largest economy has allowed its currency to depreciate, and this could have further ramification for regional USD appreciation. The willingness of Japanese officials to jawbone USD/JPY lower could become less apparent.
Rising external yields are often associated with bouts of Yen depreciation and the resolve of the Bank of Japan to maintain domestic yield curve control may come under further scrutiny. A pop higher in USD/JPY cannot be ruled out.
USD traded at levels not seen since 2020 against AUD, CAD, NZD and NOK – otherwise known as the ‘commodity bloc’.
These currencies are susceptible to swings in risk appetite as their underlying economies are seen to be tied to global growth prospects due to their significant export of commodities.
Energy, industrial metals, precious metals and soft (agricultural) commodities are all under pressure in this round of US Dollar strengthening.
It should be noted though that the underlying problems with supply of most of these commodities have not gone away. Most particularly, the war in the Ukraine is ongoing and doesn’t look like abating any time soon.
