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Watch ECB, BOJ Decisions Likely to Strengthen Dollar Further: Barclays - Bloomberg

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00:00[CC may contain inaccuracies] Of course this two day poll is the worst performance in about a month. Well overdue given how much relentless strength we've seen in this rally. If you take a look at the declining expectations from the Fed and perhaps a higher expectation maybe of being able to get that soft landing after all does that suggest that we could start seeing a way down for the dollar. Good morning and thanks for having me on the show. I think yes you can agree that you know some of the trade was a supporting dollar trend in the US are kind of scaling back but is an important week. You have the ECB. You have to be orgy. Both of those decisions are more likely to trigger further dollar spend. So it's hard to see you know this bout of correction extend materially for us. You know I think the broad dollar is likely to peak out in this quarter in the near term. We see some of these field lists mark fully the. What do you see the biggest pressure points when it comes to Asian M soon in Asia in terms of incremental pressure. I would probably put the Indonesian rupiah out there. It's kind of like the move higher in dollar ratio and borderless trend especially. I enjoyed tailwind from on the trade side. And we've got a situation where API is going to be hiking slower and some of those periods related tailwinds already starting to weaken. So we see the pressure being most intense are showing itself up most in the IDR. So we expect on that idea to pay down how much more pressure can we see in the Japanese yen as well given that we're headed towards a big policy decision as well. So. So for us you know we kind of think the beauty is going to stay on point in their forecast revisions. They're probably going to revise growth lower inflation higher. But at the same time you know with nickel indicating wage pressures in Japan and Veolia staying on board at least in September it's quite likely that dollar yen will have another move higher in the near term before it eventually moves north. How much is the weakness that we're seeing the yen about rate differentials and how much is it about just what's happening with the trade relationship right now. So you could you could look at it as a combination of both purely for our troops are widening quite quickly and the US rates outlook is in DAX. You know the Fed like 75 basis points followed up by another 15 to 25. Whereas in Japan you know the energy bill and the fact that village is going to be hiking more normalizing policy much later and the pressure is going to manifest itself and the exchange rate. Just when it comes to the Aussie dollar there's this kind of interesting cross section of cross currents right because at the same time as you've got pretty strong terms of trade and commodities demand there's is real risk of aversion to the likes of the Aussie and the Kiwi which is going to prove to be stronger. So to us between both. We see the Aussie dollar being stronger. You know it's not dependent on financing flows like the dollar. You know the Aussie dollar is also likely to see some tailwinds from China looking at stabilising growth in the second half of this year. We see some potential pick up in infrastructure spending of late. There've been reports that the ban on Australian coal will be lifted. So that could provide another boost. And the Aussie dollar's odds have been quite sensitive to equities and this or even risk sentiment. Some of those things are unlikely to match what we've seen in the first half of this year. And if that's the case you should see the Aussie dollar start to kind of gain in line with what other commodities terms of trade with other players or what. You know it's growth. An external sector dynamics would have played a shift. One is the Chinese yuan sensitive to these days. I mean we have seen the outbreaks and the rolling Covid lockdowns now really affected that much. This time around. So I think if you look at the Chinese yuan you know the the big drivers they're basically DAX effect on the external sector is running very strong. And it's to a large extent that you'll see that kind of guy use it you know to do an equilibrium level. Only briefly during the fall May June period you've seen a bunch of portfolio outflows that allowed for this correction. The natural pressure is dollar China lower. But you know if if you're looking at a scenario where Europe would be a few big figures below parity in dollar it could be about one party. It would be natural to expect the pressure or another China to pick up again. And it had higher towards the 686 ninety level.

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ECB, BOJ Decisions Likely to Strengthen Dollar Further: Barclays

Ashish Agrawal, Asia head of foreign exchange and emerging markets macro strategy research at Barclays, discusses the outlook for the dollar and Asian currencies. He speaks with Shery Ahn and Haidi Stroud-Watts on "Bloomberg Daybreak: Asia." (Source: Bloomberg)

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