Latest news with #USDs
Business Standard
01-07-2025
- Business
- Business Standard
We could be entering uncharted territory in the global financial system as USD's primacy and safe-haven status are being challenged, alerts RBI
RBI in its financial stability report stated that the US dollar faced sharp depreciation pressure against most major currencies in the recent market turmoil. Typically, the USD tends to outperform other currencies in two entirely different scenarios; during periods of global stress as well as when the US economy exhibits exceptional growth, on the other hand it underperforms when global growth is strong relative to the US the so-called dollar smile. This has been the defining framework for forex investors for a considerable period. However, in the current episode of exceptional economic uncertainty, the prices of US financial assets, including equities, have fallen forcing global investors to rebalance their portfolio. This has contributed to the depreciation of the USD, as growth slowdown fears and fiscal worries continue to weigh on the dollar. Moreover, RBI noted that the correlation between the USD and the US Treasury bond yields has diverged since the tariff announcements in April. In parallel, investors are increasingly hedging their holdings in dollar-denominated assets, which could put further pressure on the USD. Moreover, there are structural changes happening in the global economy such as a major shift in the US trade policy and resetting of the global economic order. Thus, we could be entering uncharted territory in the global financial system as the USDs primacy and safe-haven status are being challenged, the central bank alerted.
Scoop
30-06-2025
- Business
- Scoop
The Ceasefire Bolstered Confidence, And Commodity Currencies
The ceasefire between Israel and Iran captivated market attention last week. Risk appetite returned, and oil prices are back trading at levels seen prior to the conflict. We may have avoided a spike in petrol prices, but Kiwi households are still having to contend with a lift in food inflation. The cost-of-living crisis was meant to end. But inflation is rearing its ugly head once again. Talking currencies, our COTW looks at the highly unusual soft USD, in such an uncertain world. It has many talking about a new world order, and the end of the USD as a reserve currency. But we argue that we have NOT seen a material move out of USDs. Here's our take on current events Holding… holding… held. That pretty much sums up how we (and markets) were looking at headlines last week as news broke around a ceasefire between Israel and Iran – a truce 'orchestrated' by none other than President Trump himself. Despite a bit of a rocky start, the ceasefire continues to hold. The news bolstered risk sentiment, with equities rallying. Meanwhile, oil prices quickly unwound their recent spike and have returned to levels before the conflict broke out. To be honest, market movements during this period of escalated conflict had been more subdued than what you may usually expect in times of war, and potential disruption to oil supply. Maybe it was the more targeted and localised nature of the conflict. Or maybe the broader macroeconomic fundamentals of weaker global growth (thanks to tariffs) tempering oil demand. It's most likely a bit of both. But we also think markets may be becoming a bit desensitised to the constant stream of risk events that define today's environment. Meanwhile, movements across currencies continue to surprise us too. If we had spent the last 3 months deep in the Himalayan mountains, protecting endangered tigers, we would come out oblivious to market moves. If we were given the headlines only… we would have said the NZD should be in the low 50s (not 60s). Why? Well, a global trade war of such magnitude should hammer a (Kiwi) commodity currency. But it hasn't. A soft USD, highly unusual in such an uncertain world, has many talking about a new world order, and the end of the USD as a reserve currency (See our COTW for more). We're facing into many headwinds. But we're steadfast in our forecast for the Kiwi. We're sticking with our call for 60c by year end. Yes, given our brave calls of the past and because the Kiwi is basically oscillating around 60c today, it sounds boring. But boring it is not. We expect to see a typically wide trading range around 60c. If downside risks dominate, we could see the Kiwi dip back below 57c. A move less likely with USD weakness. And then there are the upside risks… low in likelihood, but could see the Kiwi pop into the 62-63c range. So, there's something for importers and exporters… and both will get their chance to play. Our forecast for 2026 sees a move in the Kiwi up towards 63c, as the global economy recovers (we hope) with further rate cuts delivered. That's our central scenario. Upside risks could see 65-67c (our 2027 forecast brought into 2026). But many are suggesting we're entering a very different world. And it's the beginning of the USD's end. That's hard to trade. Be sure to check out our latest FX tactical 'Vexing volatility, unusual uncertainty, & polarising protectionism' for more on our outlook on the Kiwi dollar and other key currency pairs. Here at home, we may have avoided a spike in petrol prices like we saw in the fallout of the 2022 Russia-Ukraine war. But households are still having to contend with a recent pick up in food inflation as well as climbing energy bills, council rates and insurance premiums. In an op-ed in The Post, our Chief Economist Jarrod Kerr, penned his thoughts on inflation and the cost-of-living crisis. 'The cost-of-living crisis has ravaged discretionary spending. It has been a volatile, and gruelling few (too many) years. And lower income households have been hit the hardest. Sharp spikes in inflation act like a tax. Households are forced to spend more on essentials, and must then cut back on discretionary spending elsewhere. That hurts.' Charts of the Week: It's a diversification. Not a dumping of dollars. In this new world, searching for safer safe havens, we have seen a rebellious weakening in the USD. But the moves lack conviction. The USD DXY has traded as low as 97.90(ish), taking out the lows of 2023 and '24. Is that worrying? Not really. We were much lower over 2020-21, even lower in 2018, and much lower between 2005 and 2014 (averaging close to 80 in the DXY with lows as deep as 70). So, 97 isn't low. We are not seeing a dumping of dollars. What we are seeing is a mild diversification out of dollars and into assets like gold, currencies like the Euro, and more speculative assets that have the potential to disrupt, namely cryptocurrencies. And it must be said: Trump wants a weaker dollar. MACA: Make America Cheap Again. The dollar is still the global reserve. If it was the end of USD dominance, we would see a much more meaningful flight out of US Treasuries. The bond market vigilantes have made much noise, but little movement. The US 10-year yield is stable around 4.4%, a level consistent with the economic environment plus a little term premium. The yield would have to be 100bps higher, around 5.4%, to get us worried, and convinced in de-dollarisation. And such a move out of dollars would see a far more aggressive flight into gold. US$3,365 per ounce sounds high, and it is historically. But if you truly want out of fiat currencies, it should be higher. Although Bitcoin has had a fair run, cryptos would also get more (consistent) interest without USDs. The lack of conviction in the flight to safety trade may also reflect the fact that markets simply care less. Despite (depressing) headlines and daunting dealing room discussions ('are we on the brink of WWIII?'), financial markets are quizzically calm. There was more panic in the fallout of President Trump's Liberation Day back in April. The VIX – 'fear index – shot up above 50 for only the fourth time in history. In today's abnormal times, its back running at 'normal' levels. Getting out of US dollars is harder than you think. The Euro has been an obvious (next largest, next best) option. But we must remind readers that it was only 12-14 years ago when we had the European debt crisis… remember Grexit? Serious strategists at the time were predicting the end of the EU altogether… a view many still think is inevitable without fiscal union. So, the EU has problems. Clearly the Swiss francs and Japanese yen hold dear to the hearts of panicked investors. But they too have issues around the strength of their currencies at times… remember the Swiss dropping its peg in 2015? Now that's volatility. Yes, Francs always make sense, but to a point. So where else do you go? The British pound is an option… but they received a double notch downgrade in 2016 after Brexit. BRICS? Sure… but they've fallen around 30% in the last five years. And we only like the 'I' and 'C' in BRICS. So do you explore Asia? Yes, but slowly. We think the Chinese Yuan and Indian Rupee will have a much larger role to play in global finance… eventually. But they want weaker currencies. It's hard when every country wants a weaker currency to help their exports. We can't all fall together. Because currency is a relative price… one goes down, the other up… and you need to find another safe home.
Scoop
25-06-2025
- Business
- Scoop
Vexing Volatility, Unusual Uncertainty, Polarising Protectionism… Is It The Beginning Of The End?
If we had spent the last 3 months deep in the Himalayan mountains, protecting endangered tigers, we would come out oblivious to market moves. If we were given the headlines only… we would have said the NZD should be in the low 50s (not 60s). Why? Well, a global trade war of such magnitude should hammer a (Kiwi) commodity currency. But it hasn't. A soft USD, highly unusual in such an uncertain world, has many talking about a new world order, and the end of the USD as a reserve currency. Whilst the strength in the Kiwi (and Aussie) is surprising given the risks to global trade, we have NOT seen a material move out of USDs. We must acknowledge it may be the beginning of the end. Although the end is unlikely in our lifetimes. We have so much to discuss. It's fascinating and frightening. We're facing into many headwinds. But we're steadfast in our forecast for the Kiwi. We're sticking with our call for 60c by year end. Yes, given our brave calls of the past and because the Kiwi is basically oscillating around 60c today, it sounds boring. But boring it is not. We expect to see a typically wide trading range around 60c. If downside risks dominate, we could see the Kiwi dip back below 57c. A move less likely with USD weakness. And then there are the upside risks… low in likelihood, but could see the Kiwi pop into the 62-63c range. So, there's something for importers and exporters… and both will get their chance to play. Our forecast for 2026 sees a move in the Kiwi up towards 63c, as the global economy recovers (we hope) with further rate cuts delivered. That's our central scenario. Upside risks could see 65-67c (our 2027 forecast brought into 2026). But many are suggesting we're entering a very different world. And it's the beginning of the USD's end. That's hard to trade. In this new world, searching for safer safe havens, we have seen a rebellious weakening in the USD. But the moves lack conviction. The USD DXY has traded as low as 97.90(ish), taking out the lows of 2023 and '24. Is that worrying? Not really. We were much lower over 2020-21, even lower in 2018, and much lower between 2005 and 2014 (averaging close to 80 in the DXY with lows as deep as 70). So, 97 isn't low. We are not seeing a dumping of dollars. What we are seeing is a mild diversification out of dollars and into assets like gold, currencies like the Euro, and more speculative assets that have the potential to disrupt, namely cryptocurrencies. And it must be said: Trump wants a weaker dollar. MACA: Make America Cheap Again. The dollar is still the global reserve. If it was the end of USD dominance, we would see a much more meaningful flight out of US Treasuries. The bond market vigilantes have made much noise, but little movement. The US 10-year yield is stable around 4.4%, a level consistent with the economic environment plus a little term premium. The yield would have to be 100bps higher, around 5.4%, to get us worried, and convinced in de-dollarisation. And such a move out of dollars would see a far more aggressive flight into gold. US$3,365 per ounce sounds high, and it is historically. But if you truly want out of fiat currencies, it should be higher. Although Bitcoin has had a fair run, cryptos would also get more (consistent) interest without USDs. The lack of conviction in the flight to safety trade may also reflect the fact that markets simply care less. Despite (depressing) headlines and daunting dealing room discussions ('are we on the brink of WWIII?'), financial markets are quizzically calm. There was more panic in the fallout of President Trump's Liberation Day back in April. The VIX – 'fear index – shot up above 50 for only the fourth time in history. In today's abnormal times, its back running at 'normal' levels. Getting out of US dollars is harder than you think. The Euro has been an obvious (next largest, next best) option. But we must remind readers that it was only 12-14 years ago when we had the European debt crisis… remember Grexit? Serious strategists at the time were predicting the end of the EU altogether… a view many still think is inevitable without fiscal union. So, the EU has problems. Clearly the Swiss francs and Japanese yen hold dear to the hearts of panicked investors. But they too have issues around the strength of their currencies at times… remember the Swiss dropping its peg in 2015? Now that's volatility. Yes, Francs always make sense, but to a point. So where else do you go? The British pound is an option… but they received a double notch downgrade in 2016 after Brexit. BRICS? Sure… but they've fallen around 30% in the last five years. And we only like the 'I' and 'C' in BRICS. So do you explore Asia? Yes, but slowly. We think the Chinese Yuan and Indian Rupee will have a much larger role to play in global finance… eventually. But they want weaker currencies. It's hard when every country wants a weaker currency to help their exports. We can't all fall together. Because currency is a relative price… one goes down, the other up… and you need to find another safe home.
Express Tribune
27-02-2025
- Business
- Express Tribune
The new world order moves from unipolar moment to multipolar reality
A multipolar world emerges as US dominance faces challenges from China, Russia, and rising global alliances. In 1992, American political scientist Francis Fukuyama, in his political philosophy 'end of history' proclaimed prevalence of Western liberal democracy and triumph of capitalism over communism, and expressed optimism that the unipolar world would be more peaceful and prosperous. However, over two decades of unipolarity witnessed increased geopolitical confrontations and military conflicts around the globe, leading to growing disillusionment with the anticipated optimism of global peace. Brown University's Watson Institute for Public and International Affairs has estimated that the USA incurred USD 8 trillion and resulted in 940,000 military and civilian deaths in its post-9/11 wars in Afghanistan, Pakistan, Iraq, Syria, Yemen and others besides 3.6-3.8 million indirect deaths caused by famine, food insecurity, malnutrition and spread of diseases. In the European theatre, NATO and Russia have so far, suffered extensive military and economic losses (over one million deaths and USD one trillion), with no immediate solution in sight. In the Middle East, Israel, has been unleashing brutal state power and committing genocide and war crimes against unarmed civilians in Gaza. Arab News has reported that by end 2024, the war had resulted in colossal death and destruction involving over 46,500 deaths (most of whom were women and children) besides billions of USDs infrastructural losses. Presenting an alarming account of global insecurity, SIPRI Yearbook 2024 on Armament, Disarmament and International Security stated that during the 2023, 52 countries experienced armed conflicts across the globe. Among these, four were classified as major armed conflicts (10,000 or more fatalities in one year), while 20 were categorized as high-intensity armed conflicts (1,000–9,999 fatalities). Total number of conflict-related fatalities worldwide stood at 170,700 in 2023. Western global financial system is also anchored around carrot-and-stick approach to pursue geopolitical objectives. Weaponization of Dollar and International Financial Institutions (IFIs) emerged as the principal tools to either rewarding likeminded countries or constricting geopolitical space for the non-compliant states, thus undermining the principles of equity, fairness, shared interests and global consensus. Imposition of sanctions and trade barriers, and misuse of forums like FATF for geopolitical arm twisting are few of the examples in this regard. Currently, USA is in love-hate relationship with China having inherent dichotomies. On one hand, USA has declared China as the main competitor in its National Security Strategy 2017 and orchestrated military alliances such as QUAD, AUKUS and Squad to encircle China, however on the other hand, it had a bilateral trade of USD 583 billion during 2024. Similarly, the USA has designated India as the 'net security provider' against China in its Indo-Pacific Strategy-2022 and extended number of nuclear, technological, military and economic favors to India. However, on realistic grounds, India not only falls short of the required capabilities commensuration to its designated role but also expressed its unwillingness to side USA in case of confrontation. Interestingly, India also enjoyed bilateral trade with China of over USD 118 billion during 2024. China, on the other hand, has been translating its unprecedented economic growth to attract global acceptance by pursuing cooperation instead of competition and inviting mutually shared prosperity. China's global projects including Belt and Road Initiative (BRI-2013), Global Development Initiative (GDI-2021), Global Security Initiative (GSI-2022), and the Global AI Governance Initiative (GAIGI- 2023) seem to have gained traction. China has so far, signed over 200 cooperation agreements with more than 150 countries and 30 international organizations across Asia, Africa, Europe and South America. China is utilizing its huge economic space to lead in research and development in military, space, cyber space, AI and emerging technologies. According to Critical Technology Tracker of Australia Strategic Policy Institute (ASPI), China topped 57 out of 64 technology areas (90%) for producing research papers released between 2019 and 2023. Owing to its growing clout and credibility, China has also emerged as the global peace maker to settle direct and proxy military conflicts across Eastern Europe, Middle East and Africa. In a significant development, post Russian President Vladimir Putin's visit to China in May 2024, a joint communique was issued which predominantly conveyed the beginning of a 'new era' and pledged to 'promote an equal and orderly multipolar world, the democratization of international relations and to gather strength to build a just and reasonable multipolar world'. The joint statement also highlighted that the multipolar world order will be principled on two rules. One, a new world order with 'no neo-colonialism and hegemonism of any kind'. Two, an order 'based on the UN Charter'. China and Russia have also promoted and strengthened multilateral forums such as the Shanghai Cooperation Organization (SCO), which represents almost half of the world's population, hosts four nuclear weapon states and constitutes 60% of global economy. Remarkably, the SCO Summit in Astana in July 2024, recognized the shift in global power structure from a unipolar world order to a multipolar one. BRICS is another example, comprising a bloc of emerging economies of the world representing 36 percent of world's GPD. With the inclusion of Iran, Saudi Arabia and the United Arab Emirates, BRICS now produces about 44 percent of global crude oil. In 2023, the BRICS economies overtook those of the G7 based on their share of world GDP in purchasing power parity terms. There has also been a discourse regarding the potential of BRICS countries to trade in local currencies aimed at de-dollarization. In this regard, China has already encouraged countries to settle trade in local currency. According to a report by People's Daily Online, China's trade in Yuan accounted for 25% of its total trade in 2023. The USA's unipolar moment is being challenged and under threat from two intensely interwoven realities. One, from American own pressure emerging out of unilateralism, military interventionism, unwavering support to the Israeli genocide, ever increasing insecurity amongst allies, expansion of NATO, arming Ukraine against Russia, containing China and designating countries like India as the 'net security provider', rapidly losing technological race and economic pressures. Secondly, resurgent Russia alongside peacefully rising China are spearheading an alternative global order grounded on the principles of shared interests and mutual prosperity with a promise of 'no neo-colonialism and hegemonism of any kind' and an order 'based on the UN Charter'. President Trump's recent hands-off initiatives not only promise a path towards global peace and security but also raise questions about the future of prevalent global security architecture.
