Khoon Goh, Head of Asia Research, ANZ, says every time the Fed embarks on a fresh easing cycle, the dollar tends to depreciate heading into not only the first rate cut but the second rate cut as well. So, I think there is a further downside in the dollar to come in the coming months.
The dollar index continues to be fairly volatile. In fact, from those 106 levels, it is down to 101. Even the Indian rupee for that matter had weakened quite a bit and is almost at the lowest point. What is your sense as to where the dollar is headed next?
Khoon Goh: Overall, I am still bearish on the US dollar. I believe the dollar is clearly on a downtrend on the back of expectations that the Fed will start its easing cycle next week. And when we look at history, every time the Fed embarks on a fresh easing cycle, the dollar does tend to depreciate heading into not only the first rate cut but the second rate cut as well. So, I think there is a further downside in the dollar to come in the coming months.
Is this largely because of this China outlier factor? Last time when the dollar index went down, it coincided with a rate cut and that also coincided with a demand spur in China. But given that China right now is not the engine of growth, the weak interest rate and the weak dollar argument does not hold. Is China the big reason why the historical correlations are breaking?
Khoon Goh: I do not believe that the historical correlations are breaking, at least in terms of FX markets, the link between the dollar and lower US interest rates.