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Asian Currencies Under Heavy Pressure, Euro Weakens

Published 09/10/2015, 05:14 AM
Updated 07/09/2023, 06:31 AM

Market watchers are trying to catch their breath after all of the recent turmoil and take stock (pun intended) of the current situation. The short version: it's confusing, and it's volatile.

In China, the government has spent over $200 billion in market interventions, and devalued the currency, but Shanghai's main stock market is still down 40% from its June peak. CNN is reporting that China's 2015 Q2 growth report came in at 7%, but that the government target was – wait! – 7%. No one really believes Chinese government growth predictions anymore, and the country's electrical production, manufacturing indexes, and rail freight volumes are all dropping sharply. It's getting hard for China to hide its steep economic slowdown.

China is the world's second largest economy, so this is naturally having serious effects pretty much everywhere. US stock markets experienced a massive drop in the wake of China's market crash, and have been volatile ever since, with big gains followed by steep losses. The general price trend is downwards, and it's the behavior expected in the lead-up to another, more serious, crash. Investors, be wary.

In forex markets, Asian currencies are under heavy pressure. The Malaysian, Indonesian, and Vietnamese currencies have all dropped sharply or been devalued under the influence of Chinese exposure, and South Korea's won is trading at 5 year lows against the dollar. With dropping demand in China, commodity-linked currencies are especially hard hit. The Canadian dollar has fallen sharply against the US dollar, with the USD/CAD at 1.3286. The Australian dollar also has fallen, and the AUD/USD is trading at 0.6972.

Both the Aussie and the loonie have tracked the price of oil, which, despite a recent surge, is still down about 50% from last year's high prices. Brent crude is trading for $48.17 per barrel, and West Texas for $44.80 per barrel. Watch that US price closely – the US markets are reopening after a holiday weekend, so it's likely to be more volatile than usual today.

Finally, in Europe, Greece is heading for spot elections which will likely be seen as (another) referendum on the bailout terms and the euro. Alexis Tsipras is betting that his personal popularity will get him back into office, but right now his Syriza is fragmenting and running neck and neck with opposition. The never-ending drama in Greece may be contributing to the euro's weak performance, at just 1.1180 to the dollar.

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