Dollar Softens Ahead of the Holiday

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  • China extended trading hours for the onshore yuan to 1130 PM Shanghai time.
  • France will report November jobseekers today, and are expected to fall -10k.
  • The US reports weekly jobless claims for the week ended December 19.
  • Korea’s National Pension Service said it will reduce its FX hedging target for overseas bonds to 50% by the end of 2017 and to 0% by end of 2018.
  • Colombia’s central bank tweaked its FX intervention program.
    Mexico reports November trade, and is expected at -$2.2 bln.

Price action: The dollar is mostly weaker against the majors, but trading is thin ahead of the holiday. The Scandies are outperforming, while the Loonie and sterling are underperforming. The euro is trading near $1.0960, while sterling is trading right around $1.49. Dollar/yen is trading at its lowest level since November 2, just above 120. EM currencies are mixed. KRW and TWD are outperforming while RUB and TRY are underperforming. MSCI Asia Pacific was up 0.4% on the day, with the Nikkei down 0.5% after returning from holiday. MSCI EM is up 0.2%, rising for the fourth straight day and for 7 of the past 8 days. The Shanghai Composite was down 0.7% while the Shenzen Composite was down 0.2%. Euro Stoxx 600 is down 0.2% near midday, while US futures are pointing to a lower open. The 10-year UST yield is flat at 2.25%, while European bond markets are mixed. Commodity prices are mixed, with oil mixed and copper down slightly.

  • China extended trading hours for the onshore yuan to 1130 PM Shanghai time. Currently, trading ends at 430 PM. China will also allow more foreign participation. PBOC noted that permitting foreign institutions to trade in the onshore yuan market will help narrow the gap between the onshore and offshore rates. We have always felt this was one of China’s goals in internationalizing the yuan.
  • France will report November jobseekers today, and are expected to fall -10k. French data have been disappointing this week, including Q3 GDP and November consumer spending.
  • The US reports weekly jobless claims for the week ended December 19. The previous week (which coincides with the BLS survey week), initial claims fell to 271k. The Atlanta Fed’s GDPNow model now puts Q4 GDP growth at 1.3% SAAR, down from 1.9% previously due to yesterday’s November personal spending data.
  • Korea’s National Pension Service said it will reduce its FX hedging target for overseas bonds to 50% by the end of 2017 and to 0% by end of 2018. The NPS currently hedges 100% on overseas bonds and no hedging on overseas stocks. To us, this makes sense if the NPS believes we are entering a period of sustained won weakness, which would make overseas investments more profitable.
  • Colombia’s central bank tweaked its FX intervention program. It will now auction call options when the exchange rate is 5% (or more) weaker than the 20-day moving average. Previously, it would auction the call options after a 7% move. So far, no auctions have been held.
    Mexico reports November trade, and is expected at -$2.2 bln. Inflation has fallen to record lows, and yet growth is sluggish. We think that Banxico’s tightening cycle will be very modest.