Originally published by AxiTrader
The US dollar traded up to 100 overnight in index terms and is still sitting at that level as early Asian trade really kicks off this morning. That strength, particularly against the majors, is driven by an acute sense of policy divergence between central banks and higher growth and inflation that trump's policies will produce in the US.
That feeling that the US is the investment destination of choice right now might be flawed given it is based on a premise that president Trump won't alter his policy platform from candidate to president but it has traders and investors fretting about fund flows out of Asia and other emerging markets.
That fear of fund flows, and to a lesser extent the potential economic impacts of Trumponomics, is the key driver of pressure across the region again today.
But there are signs the US dollar could be stalling a little and the conversation between Chinese president Xi and Donald Trump yesterday - along with trumps more conciliatory tone recently should help ameliorate some fears of capital flight in the days ahead.
Speaking of which. Yesterday's release of retail sales, urban investment, and industrial production was pretty solid. It showed a Chinese economy ending the year in could shape - in defiance of the doomsayers.
Of course, the slide in the value of the Yuan is in no small part a key factor in shock absorbing any economic slowdown that might otherwise have occurred in China.
But for mine even though the PBOC is setting the USD/CNY official rate at 6.8495 today there is a chance that USD/CNH might be nearing a top.
That's particularly the case given Chinese president Xi had a chat on the phone to Trump with a spokesman telling State TV that Xi said co-operation between the two nations is the only choice. He also said he hoped the US-China relationship retains its current strength.
Trump may have plenty to say about global trade and Chinese, and Asian, imports into the US. But it really feels like a fair chunk of the bad news on that front is priced in already.
Which is why it's no real surprise Asian forex (spot) is a little stronger against the US this morning as you can see in the spot table from my Reuters Eikon below.
There are no big data flows in Asia today to trouble the scorers so it really is going to be about the US dollar it seems.
The wash up of Bank Negara's comments Friday that the Malaysian Ringgit is not an international currency and Bank Indonesia (BI) moves to stem the Rup's fall has still to wash through markets.
In some sense, Negara looked like it kicked an own goal by drawing a line in the sand when this was really about the US dollar. I felt a line in the sand was a little 1990's Asian Crisisy.
But I guess the other side of that argument - one that the BI sought to achieve Friday when it said the IDR's weakness was hedging activity - is that Negara is trying to make sure these short term moves don't turn into something more pernicious with weakness in the offshore, NDF, forex market translating into actual capital flight out of the country.
Which brings me all the way back to the region as a whole.
It strikes me that EM was an alpha generator in an era of low growth, low inflation, and low rates across the developed world and markets. It's too early to tell if that paradigm has fundamentally shifted. But the signs are it might have.
That means emerging markets may see some fund flows as money stashed in EM as a safe haven moves back into developed markets as investors get closer to benchmarks.
Have a great day's trading