Ailing dollar boosts demand for commodities,credit

Sean Callow,a strategist at Westpac in Sydney said sentiment towards the dollar is 8220;profoundly bearish with no catalyst for reversal8221; at least,until the all important non-farm payrolls data next week.

With US economic data this week also offering no succour to the ailing dollar,the dollar8217;s index ,which tracks its performance against a basket of major currencies,fell to its lowest level since July 2008 before recovering somewhat.

The dollar index is down 7.5 per cent this year,making it one of the world8217;s worst-performing assets.

8220;The likely indicator of a reversal in the USD8217;s misfortunes is global equities. A sustained bout of profit-taking would assuredly spillover into foreign exchange markets,with the EUR and AUD returning back to earth,8221; said Michael Woolfolk,strategist at BNY Mellon.

For now,that reversal looked unlikely with world equities up by some 5 per cent in the past two weeks while Asian stocks outside Japan hovering close to a three-year peak hit on Thursday.

For the month,Asia-ex Japan is set to rise by nearly 4 per cent while its year-to-date gain so far is 5 per cent.

On Friday though,stocks ran out of steam as traders took profits after a recent rally with Australian shares falling by 1.5 per cent led by miners due to the strong Aussie while rising mortgage rates pushed Hong Kong stocks lower.

8220;It8217;s across the board,apart from the banking sector8230;the high Aussie dollar is now starting to weigh on this market,particularly with the miners,8221; Burrell Stockbroking dealer Jamie Elgar said.

The Australian dollar stood at 1.0902,still within easy reach of a 29-year peak of 1.0948,having gained nearly 13 per cent since the March lows.

ROARING CREDIT

While equities had a somewhat lukewarm week,Asian credit markets had a smashing one with investors snapping up issuances out of the region and credit spreads narrowing substantially.

Primary markets enjoyed one of their best weeks with Indonesia8217;s 2.5 billion dollar bond sale garnering blockbuster demand while a Chinese utility company and a Philippine port operator pushed through perpetual bond offerings.

Robust demand for perpetual bonds or perps indicated that investors were scampering to lock in high yielding rates in an otherwise low interest rate environment with outlook positive for yields.

Weekly average of issuances in the first 17 weeks of the year is nearly 2 billion helping the Asia ex-Japan year to date total a whopping 33.45 billion. The weekly average of supply is nearly a fifth higher than the average for 2010.

COMMODITIES SOFTEN

The broad commodity market rally softened with silver pulling back by nearly a dollar after rocketing to 49.51 per ounce,its highest since 1980,while NYMEX crude for June pulled away from the 113 per barrel mark.

Both Shanghai copper futures contracts and wheat futures too declined.

Thursday8217;s batch of weak U.S data meant bonds had yet another good day with benchmark ten-year US yields steadying near 3.32 per cent,well on track for its biggest monthly drop in eight months.

Elsewhere,the Chinese yuan cracked through the 6.5 per dollar line for the first time,indicating Beijing8217;s determination to fight inflation and giving a leg up to other currencies.