The DXY Index continued its winning streak for a fourth consecutive day. Thursday’s appreciation slowed to 0.2% from Wednesday’s 0.5% surge. A flat session today would put this week’s gain at the same 1.1% pace as last week. Within the DXY basket, the three weakest currencies were the GBP (-1.3%), JPY (-1.3%), and CAD (-1.1%), followed by the EUR (-0.9%) and CHF (-0.7%). We remain wary that elevated Treasury yields may stop supporting the US if markets shift focus from the Fed’s further-tightening narrative to fiscal deficit worries.
AUD lost the most value against the USD this week, depreciating by 1.6%. The increase in Australia’s unemployment rate to 4.6% in August, its highest level since 2021, dampened the monetary policy support for the AUD. However, it is unlikely to be enough to prevent the Reserve Bank of Australia from tightening monetary policy again after the three hikes in February-May. RBA Governor Michele Bullock told parliament on September 18 that she was doubtful financial conditions were restrictive enough to address the upside risks of inflation stemming from higher oil prices.
USD/CNY rose a second day to 6.7133 on Thursday, following three sessions below 6.70 for the first time since January 2023. The People’s Bank of China followed up three days of higher USD/CNY daily fixings with a statement on Thursday, warning that it would “prevent the herd effect and self-reinforcement of irrational expectations” in the forex market. The central bank also renewed its pledge to maintain the exchange rate at a reasonable and balanced level.
At the start of the week on September 21, PBOC Governor Pan Gongsheng reassured global financial institutions of China’s commitment to the high-level opening of its financial markets. China will steadily expand two-way financial market access, improve policy delivery, optimize cross-border payment systems, and systematically facilitate the international use of the CNY by strengthening the Stock Connect, Bond Connect, and Swap Connect.
Overall, given that the Fed and the ECB have prioritised monetary tightening to return energy-led inflation to target, China also has more incentive to keep the CNY relatively stable or allow measured appreciation.
Quote of the Day
“If the freedom of speech is taken away then dumb and silent we may be led, like sheep to the slaughter.”
George Washington
Today in history
On September 25, 1789, the First US Congress formally proposed 12 amendments to the US Constitution, which later led to the establishment of the Bill of Rights. These articles aimed to secure personal freedoms like freedom of speech, press, religion, and the right to peaceful assembly.
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