US$ fell. Mixed Outlook, Employment issues and ‘too bullish previously.’

US$ fell today. Since US$ fell, Ringgit rose. Trump has yet to make his mark, so why did US$ retreated? The reasons according to an article in Wall Street Journal is as follows: ‘Investors grew cautious of U.S. economic outlook.’ (Huh, just within weeks can suddenly grew cautious??) Another comment: “This is a realization that the market got ahead of itself.” (This simply meant that the expectations by investors were too bullish previously.) Last would be the hiring data. “Disappointing private-sector hiring data cast some doubt on the health of the U.S. labor market.” (Yes, this comment simply meant the jobs are not being created fast enough and that potentially more people may be losing their jobs)  Want to read the article in full? It’s here:  full article. 

Actually, when the numbers do not look good, why would the US$ be falling? They have always been having trade deficits anyway and yet the currency continued to appreciate. Well, when the numbers do not look good, the Federal Reserve (Fed) may NOT raise rates. If the Fed does not raise rates, then there’s no incentive to buy ever more US$ and wait. It’s like buying a property. If you know that property is not going to increase in price, would you still be buying it and wait for the price to appreciate? However, we are still buying property because we know the prices are still moving up, right? Exact same situation with US$. So, bad news does not immediately mean US$ going down. It meant Fed may take NO actions and that would meant lower demand for the US$.

Before anyone rushes to buy ringgit or even just any stock from BURSA, let’s just note that nothing fundamental has changed. Not just for the U.S economy but also Malaysia’s. To understand the direction, it’s best to look at the U.S after Trump has assumed Presidency formally. That’s just 14 days more. Will ringgit still weaken? Wrong question. Will US$ appreciate or depreciate? That’s the correct question which will determine the direction of the ringgit. Recently, US$ hit 14-year high. Naturally, majority of every currency hit new lows. What else would I pin my hope on? There’s the mighty China’s Yuan policy. That will also help to bolster emerging market currencies too. Follow that closely yeah. Happy following.

written on 6 Jan 2017

Next suggested article:   Pound Sterling and US Dollar at parity?

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