Written by Jameel Ahmad, Global Head of Currency Strategy & Market Research at FXTM
Indonesian Rupiah declines slightly against Dollar
The Indonesian Rupiah has declined slightly against the Dollar as the markets opened for the new week of trading with the USDIDR advancing by +0.08% to 13,639. The Indonesian Rupiah has now weakened by 0.62% against the Dollar year-to-date, although I wouldn’t suggest that the currency weakness is due to a downgrade in optimism over the Indonesian economy. It is likely hoped that the Rupiah weakness will support stronger export growth, following the GDP reading from last week indicating that lower borrowing rates encouraged the Indonesian GDP to expand by 5.1% in 2017.
Stock Markets remain high on radar
Investors around the globe will closely monitor how the stock markets perform throughout trading today, following the rollercoaster ride that the financial markets experienced last week.
Although it would not be an understatement to suggest that volatility in global stock markets has reached intense levels, I don’t think there is a reason to be overly concerned by the recent market fluctuations. Similar levels of volatility were not seen in other asset classes such as the currency markets, suggesting that this is a stock market story and not a sign of concern over global economic health.
It has been warned for quite some time that stock market valuations were over-stretched, therefore the sell-off was quite likely just a market correction.
USD looking at risk to slipping lower
The Dollar is appearing at risk to withdrawing some of its gains over the past week, as investors eagerly await the upcoming inflation data release due from the United States on Wednesday.
Investors are already expecting a probable US interest rate increase from the Federal Reserve over the next couple of months, meaning that a positive inflation reading on Wednesday would likely provide investors with assurances that another increase in US interest rates is around the corner.
Whether more assurances that the Federal Reserve will resume its commitment towards higher US interest rates is enough to convince investors to re-purchase the Dollar at these lower levels remains to be seen, because I feel that investors will be paying more attention towards whether a possible rise in global inflation expectations accelerates the motives of other developed central banks to raise their own interest rates.
Increased US interest rates were priced into the Dollar a very long time ago, and I feel that investors are instead more enthusiastic about the prospect of higher interest rates from the Bank of England and European Central Bank.
Gold attempting to recover momentum
One of the main reasons why I am not concerned that the stock market sell-off from last week was a sign of mass panic from investors is because of the limited buying interest in Gold, in spite of the heightened stock market volatility. Gold usually benefits from an increase in interest as a safe haven instrument during uncertain times in the market, but the lack of interest in Gold over the past week has surprised a few in the market.
I personally think that the losses in Gold last week can be seen as a positive factor, because it provides more confidence to investors that the sell-off in the markets was a correction, and not a sign of panic over the global economy.
WTI Oil finding support at $60
With the global financial market headlines over the past week focusing on stock market volatility, it has slipped under the radar that increased volatility in Oil saw the commodity suffer its worst decline in two years. Rising concerns over an increase in US production and a recovering Dollar have weighed heavily on the price of Oil.
Anxiety that OPEC members might soon announce an intention to consider increasing production output following optimism that the market oversupply has rebalanced could now come under question, following the recent indications of increased production from the United States. This could leave to the price of Oil finding support somewhere around $60 for the time being.
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