Daily brief: Asia-Pacific markets face risk-off move as US dollar batters sentiment

Monday’s Asia-Pacific outlook

Asia-Pacific market sentiment may suffer from Friday’s steep selloff on Wall Street. The Dow Jones Industrial Average (DJIA) fell 1.62% on Friday to close the week out with a 4% drop. Traders sold risk assets after UK Gilt yields surged higher following news of a government package of tax cuts and other expansionary measures.

The British pound fell to its lowest level since 1985 against the Greenback. Gold held up well throughout the week until Friday, when prices sank over 1%. XAU’s direction may hinge on the S&P 500 and broader equity direction in the days ahead.

The US dollar and its dominance over the last few months is weighing heavily on Asian markets. The Japanese yen and Chinese yuan have already displayed potential failure points in the system, threatening to produce another regional financial crisis. Bank of Japan Governor Haruhiko Kuroda is due to speak today as the JPY level remains a prime focus for market participants.

A move above 144 for USD/JPY (大口） is likely to attract immediate attention, with the 145 level being the current pain threshold for the Ministry of Finance (MoF).

Today’s economic calendar is rather light, leaving prevailing risk trends at the helm. APAC equity indexes closed mostly lower on Friday. Hong Kong’s Hang Seng Index (HSI), China’s CSI 300, and Japan’s Nikkei 225 fell by 1.18%, 0.34%, and 0.58%, respectively. Thailand and Hong Kong are slated to release trade data today, both for the month of August.

China’s yuan is likely to remain subject to a rising dollar this week. The People’s Bank of China (PBOC) has attempted to slow USD/CNH’s ascent through its daily reference rate fixing operations, which are likely to continue (albeit with limited effect, if the recent past is any indication).

Elsewhere, the South African rand is in focus as the country grapples with another round of power cuts. The country’s energy supplier, the state-owned Eskom, said that national grid outages should be expected until Thursday. USD/ZAR rose for a fourth week, bringing prices within 0.5% from the psychologically important 18.00 level.

US dollar technical analysis

The DXY Index smashed through its June 2002 high during last week’s big move. A trendline from May, which initially served as support before turning into resistance was pierced. Prices may find support at that trendline. The May 2002 high at 115.34 is a possible target, and bullish movement in DXY’s momentum oscillators supports a move higher. The Relative Strength Index (RSI) entered overbought conditions, and MACD is tracking higher above its signal line.

US dollar (DXY Index) – daily chart

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