Reflecting the turbulence in the global economy, the US dollar rate plunged against most peers on Wednesday after the US rate increase waned. The dollar plunged and oil rise to $50 per barrel and gained more than 20 percent in a single day.
Minutes of the Federal Reserve’s July meeting on Wednesday had a dovish tone compared to the hawkish public comments of regional Fed chiefs, who were battling for higher rates as soon as September.
On the falling dollar rate, Morgan Stanley cautioned that investors are overestimating the odds of higher borrowing costs.
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, saw USD down 0.6 percent as of 4 p.m. in New York. The dollar also dropped versus the yen, losing 0.4 percent.
“The US dollar has remained under pressure across the board,” said Jennifer Hau, a foreign-exchange strategist at Credit Agricole SA in London.
As dollar rate fell, energy stocks made gains in the S&P 500 Index. Brent crude topped $50 a barrel in London. Base metals also jumped.
That loose monetary policy in developed economies will continue and exert on the dollar was evident. Benno Galliker, a trader at Switzerland’s Luzerner Kantonalbank AG said: “Central banks are going to remain quite accommodating and rates are going down and down and down.”
He said Federal Open Market Committee minutes disappointed those looking for a more explicit hawkish signal.
Commodities made a comeback from the falling dollar rate as Bloomberg Commodity Index posted the longest rally in as dollar weakened. In oil, West Texas Intermediate crude advanced in more than a year amid speculation that OPEC may bring a cap as a decline in US oil and gasoline inventories persists. Gold, copper, and silver also advanced.
The WTI for September delivery closed at $48.22 a barrel on the New York Mercantile Exchange, while Brent for October settlement closed at $50.89 on the London ICE Futures Europe Exchange.
Meanwhile, leading non-OPEC oil producer Russia also expressed readiness to join the production freeze club soon after Saudi Arabian Energy Minister Khalid Al-Falih said OPEC talks on September may lead to production cut.
Southeast Asia Next Commodity Hub
Meanwhile, hope for a commodity price rebound escalated and commodity majors have started looking beyond China market, Many see a commodities rebound in the making at Southeast Asia’s emerging economies.
According to Bloomberg, the combined GDP in the ASEAN-5 — Indonesia, Thailand, Malaysia, the Philippines and Vietnam — will rise 33 percent and touch $3 trillion by 2020. That will unleash a boom for commodities-intensive infrastructure projects.
BHP Billiton Ltd.’s Chief Executive Officer Andrew Mackenzie was upbeat about the SE Asian markets while addressing an earnings call.
Regarding the uptick in oil and commodities in the wake of dollar rate decline, Bill O’Grady, chief market strategist at Confluence Investment in St. Louis said: “This whole rally has been based on OPEC jawboning, which to their credit has been quite effective.”
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