FX Daily: Risk aversion on Evergrande-led sell-off

Wary of more pain ahead.
Philip Wee21 Sep 2021
    Photo credit: Unsplash Photo

    The market sought safety in the CHF and JPY, which appreciated 0.5% each. The Evergrande-led global stock market sell-off eclipsed Fed taper worries at the FOMC meeting on 22 September. The US 10-year treasury yield eased to 1.311% from 1.362% as the Dow, S&P 500 and Nasdaq Composite fell 1.8%, 1.7% and 2.2% respectively. The fall in the S&P 500 was the largest since May and it might not rebound this time around. The index traded below its 100-day moving average during the session for the first time since early November. The VIX volatility index is signalling more pain ahead with the 50-day moving average looking to cross above its 100-day counterpart. 

    DXY rose modestly to 93.28 from 93.20, driven mostly by GBP and CAD which depreciated 0.6% and 0.5% respectively. Both were pulled lower by crude oil prices; Brent fell to USD73.90/bbl from USD75.35 while WTI fell to USD70.30 from USD72. GBP depreciated below 1.37 when FTSE 100 extended its fall below 7000. GBP could test the 1.36 support if FTSE falls below 6800. In Canada, CAD is weak above 1.28 per USD again, nervous that the tight race at the snap election would result in a weak minority government. AUD depreciated 0.4% from iron ore hitting a new year’s low of CNY645 per metric tonne. However, EUR was supported at its psychological 1.17 level despite the harder 2.1% sell-off in European stocks.

    Chinese markets were closed for the mid-autumn festival. The Hang Seng Index, which fell as much as 4.2% at one point, ended the session 3.3% lower. CNH bore the depreciation to 6.4830 per USD from 6.4713 last Friday, 0.3% weaker than the CNY’s close of 6.4661 last Friday. In Southeast Asia, THB extended its depreciation for a third session above 33 per USD, closing in on the year’s weakest level around 33.5. Thailand lifted its public debt ceiling from 60% to 70% of GDP to help its Covid-stricken economy. The Philippines is also approaching its 60% threshold. PHP also depreciated above its psychological level of 50 per USD, eyeing the year’s weakest level above 50.5. MYR could be next to test its 4.20 psychological level; Malaysia has proposed to raise its ceiling to 65%. Dragged by a stronger USD and weaker regional peers, the price-taker SGD depreciated above 1.35 for the first time since 26 August. The SGD NEER, as per our model, retreated to 0.7% from 1.0% above the mid-point of its policy band this morning.

    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]

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