Dampening of China optimism weighs on commodity and EM FX – MUFG

By FXStreet Lee Hardman, Currency Analyst at MUFG, suggests that the recent rebound for the US dollar continues to be most evident against commodity related and emerging market currencies both of which benefitted in part early this year from building optimism over the outlook for China’s economy.

Key Quotes

“The initial optimism was triggered by comments from Chinese policymakers that they were going to loosen both fiscal and monetary policy this year to provide more support for economic growth. New loan growth and public spending has picked up consistent with looser policy settings. However, there are doubts beginning to creep in over how long the boost to growth will be sustained.

An interview with an unnamed “authoritative person” in the People’s Daily yesterday has added to those concerns. The person stated that China should put deleveraging ahead of short-term growth and drop the “fantasy” of stimulating the economy through monetary easing. Supply-side reforms will remain the focus of economic policies for the near-future, and a more pro-active response is needed to deal with rising bad loans.

The interviewee was also pessimistic over the outlook for economic growth in China stating that its performance will be “L-shaped”, not a “U” or a “V” for …read more

Source:: FX Street