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- The U.S. dollar lurched higher on Tuesday as China allowed its yuan to fall to levels last seen in 2012, a shift that could provide a competitive boost to exports for the world’s second-largest economy. Asian stocks turned mixed as investors weighed the implications of the surprise move, which seemed to end months of officially sanctioned yuan strength. Other currencies in the region also lost ground to the U.S. dollar as investors reasoned they would need to fall to keep exports competitive with China. In commodity markets, the shift in Beijing’s currency policy could be seen as a negative in the very near term as a lower yuan makes resources more expensive to Chinese buyers. Elsewhere, in China inflation for July rose moderately by 0.2% to 1.6% spurred by rising food prices throughout the world’s second-largest economy. Inflation levels still fell significantly below the People’s Bank of China’s targeted goal of 3%. China’s Producer Price Index also plunged 5.4% for the month, extending its longstanding streak of monthly declines to 40. Analysts expected the index to decrease by approximately 5% in July. Over the last two months, Chinese equities have lost an estimated $2 to $3 trillion in value, amid liquidity concerns and the slowest growth in the economy in more than a decade.
- Gold prices held weaker to steady in Asia on Tuesday with the focus on the timing of a widely expected Federal Reserve rate hike this year still in some doubt. Overnight, gold surged on Monday experiencing its strongest one-day moves in nearly two months, amid dovish comments from a prominent Federal Reserve official on the timing of the U.S. Central Bank’s first interest rate hike in nearly a decade and continuing concerns surrounding the economy in China. Fed governor Stanley Fischer insisted on Monday that lift-off for a September rate is not a certainty, in spite of solid numbers last week from the U.S. Department of Labor’s July national economic situation report. In an exclusive interview with Bloomberg, Fischer indicated that while the labor market is moving closer to full employment, inflation still remains below the levels needed to allow the Fed to normalize policy.
- Economic conditions in the United States have largely returned to normal and a Federal Reserve decision to raise interest rates should come soon, Atlanta Fed President Dennis Lockhart said on Monday. “I think the point of ‘liftoff’ is close,” Lockhart said in a speech to the Atlanta Press Club. “The economy has made great gains and is approaching an acceptable normal … conditions are no longer extraordinary.” He later told journalists he was “very disposed” to a rate increase at the Fed’s September policy meeting, but emphasized that the path of subsequent hikes should be gradual. He defined a gradual path as being more frequent than every other meeting.
- Crude oil prices fell in early Asia on Tuesday with the focus on weekly data points ahead in the U.S. on supply. On Tuesday industry group the American Petroleum Institute will release its estimates of crude and refined product stockpiles last week. On Wednesday, the U.S. Department of Energy will release its own more closely watched figures on the same stockpiles. Overnight, oil jumped almost 4% on Monday after a rally in U.S. gasoline and diesel due to a refinery outage helped crude futures advance from multi-month lows. The dollar’s (DXY) drop to a near two-week low also made oil and other commodities denominated in the greenback more affordable to holders of the euro and other currencies. The rally came after a malfunction at the 240,000-barrels-per-day crude distillation unit at BP (LONDON:BP)’s Whiting, Indiana refinery sent gasoline prices soaring more than 4 percent.