Lukman Otunuga, Research Analyst at FXTM today said that the Dollar rallied to fresh 14-year high against a basket of currencies last week following Janet Yellen’s hawkish statements at Congress which solidified expectations over the Federal Reserve raising US interest rates this year. He said that Yellen strongly suggested that an interest rate rise was on the cards amid the strengthening US economy which provided investors the clarity heavily sought.
With economic data in the US displaying signs of stability and inflation on a positive trajectory, Otunuga said the idea behind a pending rate hike is very believable. "Sentiment has turned firmly bullish towards the Dollar with further appreciations expected in the coming weeks as speculators add bets on the Fed pulling the trigger in December," he added.
A resilient Dollar downgrade Emerging Market
According to Otunuga, a resilient Dollar continues to downgrade Emerging Market currencies with Malaysia Ringgit depreciating to 10-month low against the Dollar last week. In the offshore markets, he said the currency has plunged to its weakest in almost 12 years consequently placing Bank Negara under pressure to take action.
"Although Malaysia’s economy continues to display resilience against external headwinds, the Trump effect could ensure that the Ringgit faces further punishment this year. It’s the terrible combination of growing US rate hike expectations and fears over the future of trade across Asia under Trump’s presidency that continues to pressure most Emerging Markets (EM) with Malaysia being no exception," he added.
Latest inflation report to provide some direction
Otunuga said that market participants will be looking towards the latest inflation report for Malaysia this week which should provide some direction on the health of the Malaysia economy as the year comes to an end. Malaysia’s inflation for September was 1.5% with predictions for October’s figure hovering around 1.6%.
Dollars resurgence
Outside of Malaysia, Otunuga said that much attention continues to be directed towards Dollars resurgence and Oil price weakness. "King Dollar has made a return amid the improving sentiment towards the health of the US economy consequently pressuring both EM currencies and commodities further. Oil was dogged by the ongoing oversupply concerns with optimism rapidly declining over any meaningful production freeze deal at the formal November meeting. If investors are truly left empty handed once again then oil prices may slide back towards $40," he said.
In this period of uncertainty, Otunuga mentioned that Gold failed to attract risk adverse investors consequently providing an opportunity for sellers to send the metal to five-month low.
Gold remains highly sensitive to the rising US rate hike expectations with Dollar’s strength obstructing any upside gains. Further declines could be expected in the coming weeks if bears conquer the solid $1210 support, he added.