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By Oren Laurent
President, Banc De Binary
Recently, it seems that there’s been a non-stop flow of news confirming the growing strength of the US dollar. After Black Friday’s shopping frenzy last week, this Friday’s employment data revealed a surge of over 300,000 new jobs created, the highest figure in monthly non-farm payrolls since January 2012.
The positive data from the States has encouraged speculation that the Federal Reserve, the country’s powerful central bank, could raise interest rates sooner than expected. Reading the signs, most banks are anticipating that the dollar will climb even higher against its major peers in the year ahead. But while the US rejoices with the approach of Christmas, the dollar’s gains doesn’t necessarily translate to happy faces everywhere.
The Bank for International Settlements has warned about the fragility of the emerging markets such as China and India. Many emerging economies have become increasingly reliant on USD loans. Since the end of 2012, dollar loans to China have doubled in size to a staggering $1.1 trln. Yet as the dollar appreciates, the debts are becoming harder to pay back, putting the dependent nations and citizens at risk of default.
The foreboding warning from BIS came as China released disappointing trade figures on Monday, impacting negatively on the Aussie dollar and the New Zealand kiwi. Both economies are big trading partners of China and are sensitive to its affairs and fortunes.
Also on Monday, the MSCI broad index of Asia-Pacific shares, excluding Japan, fell 0.25 during Asian trading hours, and the dollar reached a seven-year high against the Japanese Yen. However, many analysts are unsure just how much more room there is for this currency pair to move. Much will depend on Japan’s general election on December 14. We’ll have to wait and see if Prime Minister Shinzo Abe will win another term for his “Abenomics” policies, aimed at weakening the yen and supporting the export-driven economy.
Perhaps more predictable than the price of the yen is the drop in gold. If you follow the waves of the markets, you’ll know that as a general rule, gold is inversely correlated to the US dollar. The precious metal has traditionally served as a safe haven for investors in time of market instability, and vice-versa as we’re currently witnessing. If the dollar continues to strengthen, gold will continue to lose its hedge appeal.
Amid such data, the analysts here at Banc De Binary will certainly be watching the Asian nations and commodities markets for further clues about their stability as we enter the New Year. Mixed economic signals aren’t automatically negative, but you do need to understand them and see the big global picture.
