The Dollar Is Heavy Ahead Of What Is Expected To Be A Dovish Fed

Mexican Peso:  The dollar is trading at three-month lows against the peso.  It has fallen for the last four weeks and six of the past seven.  It is not the strength of the Mexican economy or its success in getting ahead of the Covid-curve that underpins the peso.  In fact, there is a good chance that Mexico reports on April 30 that the economy contracted in Q1, and if it did grow, it is likely aided by the booming US economy through the trade and worker remittance channels.  Mexico's one-month T-bills (cetes) pay a little more than 4%.  The 4-week bill in the US has no yield. The momentum indicators are stretched and appear poised to turn higher.  A move above MXN20.00 would suggest a near-term low is in place. Yet, if the grind lower continues, there appears little on the charts to deter a test on the year's low set in late January around MXN19.55.  

Chinese Yuan:  The greenback ended a nine-day slide against the Chinese yuan, rising a meager 0.1% ahead of the weekend.  The yuan's gain reflects the broad dollar weakness we have been tracking.  Over these past two weeks, the yuan has appreciated by 0.8%, which, incidentally, is more than most Asian currencies except the Japanese yen and the Taiwanese and Singaporean dollars.  We suspect that in the near term, the PBOC would prefer the yuan to stabilize after its recent bout of appreciation.  That said, China's premium over the US on 10-year rates widened last week to 161 bp, the most in a little more than a month, though its 60 bp off level prevailing at the end of 2020.  China's April PMI is the main economic feature next week and some stabilization (slight lower readings) seems likely after the March surge. If CNY6.48 is the lower end of the range, then the CNY6.53 may be the upper end of a consolidative range for the dollar (CYB).  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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