Global investor sentiment is fueled by the recent good news about coronavirus vaccines. Moderna said its vaccine is 94.5% effective in preventing COVID-19, based on interim data from later trials.
The dollar, yen, and Swiss franc are trading lower overall as the week starts with a solid risk regime. In particular, the Nikkei rose more than 2% after the release of stronger-than-expected GDP data. The robust data package for China also supports general sentiment. New Zealand and the Australian dollar are currently the best, followed by Sterling.
Japan’s GDP grew 5.0% QoQ in the third quarter, above expectations of 4.4% QoQ, in line with a 7.9% decline in the second quarter. On an annualized basis, GDP grew 21.4%, exceeding expectations of 18.9%, the first increase in four quarters. It is also the largest increase since comparable data became available in 1980, after declining 28.8% year-on-year in the second quarter. The data, while strong, was seen only as a rebound after the pandemic’s extreme reduction.
In China, industrial production rose 6.9% y/y in October, in line with expectations. The figure is unchanged from September growth. Investment in fixed assets rose 1.8% YoY, higher than expected by 1.6%. But retail sales rose just 4.3% YoY, below expectations of 5.0% YoY However, this is still the strongest growth this year, as car sales rose 12.5%.
As for the dollar, all this carries certain downside risks. If the markets feel there is more Fed liquidity on the menu, the currency could naturally suffer. There are also overseas events to consider, such as a potential Brexit deal that will push the pound and euro up against the dollar.
But even though the risks have increased, all this also does not change the rules of the game. If the US does not go into total national isolation when Biden takes office in January, it is hard to imagine that this will lead to a fall in the dollar, especially given the ECB has been passionately defending the $1.20/dollar level lately.
The ECB does not want a stronger euro, so whenever the euro/dollar rate rises to $1.20, the central bank usually tries to “talk.” Therefore, while the dollar may heat up a bit, the downside here looks somewhat limited.
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