May – Dollar Peaks Since 2011

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The Tell

Why the peak for the U.S. dollar may have already been hit, say Macquarie analysts

Aaron Hankin

‘As we go into [the second quarter], we now see imminent downside risks for the USD building…,’ Macquarie

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A popular measure of the strength of the U.S. dollar is inching toward its highest level in almost two years, having carved out gains in the past two months.

However, as the greenback marches higher, analysts at Macquarie, who predicted its rise in the first quarter, have turned more bearish on bucks, making the case that “the top is in” for the U.S. dollar.

The team, led by Thierry Wizman, financial markets economist, notes that the dollar, which benefited from global growth and political concerns across the globe in late 2020 to early 2020, will suffer as these aforementioned market headwinds abate. “As we go into Q2, we now see imminent downside risks for the USD building, as global growth is seen to have started a tentative recovery,” they said in a research note titled, “The top is in for the U.S. dollar.”

“Stimulus from China, a wind-down of the ‘trade wars,’ and calmer seas on the European political front are all developments that could entice some risk-taking into heretofore more fragile economies, even if the ‘carry’ in those currencies remains inferior to the USD’s,” the analyst wrote.

The ICE Dollar Index, DXY, -0.81% , which measures the greenback’s strength against six major currencies, has gained 1.3% since the beginning of the year and 7.7% over the past 12 months, according to FactSet data.

U.S. Dollar Index

The big winner of a dollar selloff and an easing of international tensions would be the euro EURUSD, +1.07% says Macquarie, who have a year-end target of $1.17 for the shared currency. “Defused global trade tensions would go a long way toward boosting eurozone manufacturing PMIs, which already stand to gain a little from the 6-month Brexit postponement. And wherever the eurozone PMIs lead, EURUSD tends to follow,” they said.

A move to $1.17 resembles a 4% rise from current levels.

Furthermore, Macquarie sees the buck losing ground to emerging-market currencies, most notably the Chinese yuan USDCNY, -0.55% . The currency has been the most influenced by continuing U.S.-China trade negotiations, with President Donald Trump complaining that the People’s Bank of China is devaluing the yuan to make Chinese goods more attractive — a consistent refrain about PBOC monetary policy. Most recently, one dollar bought 6.7109 yuan, compared with 6.7044 late Friday in New York, according to Dow Jones Market Data.

The yuan, however, has steadied somewhat as fears about weakness in Beijing’s economy have been momentarily assuaged, as hopes of a near-term resolution to U.S.-China trade rise — a factor that could help the economies of both countries. “Concerns around China growth have receded following strong positive surprises across trade, credit and industrial activity in March,” Macquarie wrote.

“Seasonal distortions alongside front-loading stimulus mean March probably overstates the underlying trend, but the picture of China economy now is undoubtedly one of stabilization and improvement,” Macquarie analysts said, referring to a range of economic stimulus that the PBOC has unfurled to combat economic sluggishness.

Dollar peaks on 8-month high vs JPY as US economy keeps stable growth

US dollar gained against Japanese yen on an eight-month peak due to a stable growth rate in US economy in 2020.

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Retail sales rose for the third straight month in December while filing claims for unemployment benefits fell for the fifth straight week, showing a strong and stable labor market.

Manufacturing activity in the Mid-Atlantic region indicated a rebound in January, the highest in eight months. The Federal Reserve Bank of Philadelphia called the factory outlook the brightest in 18 months.

The dollar climbed up to 110.24 against the Japanese Yen, the highest since May 2020.

The dollar index showed the USD last priced at 97.308, up 0.1% on the day. Euro remained at 1.1137 against the USD, while Australian dollar rose up to $0.69335.

In prospect, AUD will likely depend on the upcoming fourth quarter GDP of China, but unlikely to break the $0.6934-$0.6870 range, said CBA chief currency strategist Richard Grace.

China is set to declare its GDP today (0200 GMT), including December factory output, fixed-asset investment, and retail sales.

The price of gold has peaked since May 2020

The rise in gold prices this week has gained momentum as retail and institutional investors have entered the precious metals market.

Gold with delivery in August, the most actively trading in futures contracts in New York, reached a maximum of $ 1,425.10. An ounce at the end of trading in the afternoon. If the metal can stay at these levels, it will be the highest level of closure since May 2020.

In the report on traders ’liabilities for the week ending June 18, large speculators, such as hedge funds, increased their net long positions in gold — rates on price rises — by more than a fifth to 590 tons.

The hedge fund raise rates have now reached a 16-month high after a record increase in net long positions in the last three weeks by about 488 tons. This time, gold futures speculators last year were net short claims that gold could be bought back in the future cheaper – 317 tons of gold.

On Friday, investors invested a record 1.6 billion dollars in SPDR Gold Shares (GLD), the largest fund traded on the stock exchange with gold. It was the largest influx since the foundation of the fund in 2004.

On Friday, gold bulls bought just over 35 tons of metal, with the result that GLD’s total reserves amounted to only 800 tons or 25.7 million troy ounces, which is one third of the total number held by dozens of gold ETFs listed around the world .

Recall, August 22, 2020, when gold reached a record level above $ 1,900 per ounce, GLD became the largest ETF in the world, briefly surpassing the venerable SPDR trust S & P 500 (assets today are $ 265 billion) with a net asset value of 77.5 billion dollars.

Gold in the trust will reach a peak in more than a year in December 2020 by 1353 tons or 43.5 million ounces. Global ETFs reached a record 2,632 tons, or 93 million ounces of gold at the time.

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