Hi, dear traders! The first half of 2022 was completed yesterday. Its dismal results reveal high levels of pessimism and fear. The US stock market closed the month, the second quarter, and the first half of 2022 with sharp losses. The slump on Wall Street has been the worst in the last 5 decades since 1970. It certainly made an impact on Asian markets.
Nowadays market participants are overwhelmed by recession fears. Nevertheless, the odds are lower of the United States sliding into recession than of the rest of the world. Of course, high inflation puts a strain on the Federal Reserve, American manufacturers, and consumers. However, the US can boast the firmest currency in the world, its own commodity resources, and the strongest economy. So, analysts tend to assume short-lived and minor recession. Asian markets opened the second half of the year cautiously because investors are fretting about prospects of the global economy.
What is market sentiment on the US dollar? In theory, a deep and protracted recession is set to weaken the national currency. However, analysts foresee another scenario for the US dollar. As a safe haven asset, it will take advantage over commodity currencies and the pound sterling. Thus, the greenback is asserting strength amid such prospects. Its index has gained another 0.7% for the last week. Besides, the US dollar closed the second quarter with the strongest result since 2016. Its index grew to 104.97 in the Asian trade. The intraday corridor for the index is seen between 104.74 and 105.11 with a bullish bias.
Meanwhile, the yen is also benefiting from the same factors which feed demand for the safe haven US dollar. The yen is sensitive to yields of US Treasuries which went down. Analysts estimate that the bond market has been badly bruised in the last six months which makes its dynamics the lowest for over 200 years. In midweek, the yen tested the multi-year low at 137 against the US dollar because of the striking difference between the Bank of Japan’s ultra-loose policy and the Fed’s aggressive monetary tightening. On Friday, global risk aversion amid recession fears boosted demand for the yen and it strengthened to 135.07 versus the US dollar. The dollar/yen pair traded lower in the Asian session within the corridor between 134.72 and 135.99.
The Australian dollar is losing ground against its American peer as a commodity currency and a risky asset. The aussie finds modest support from the Reserve Bank of Australia’s hawkish policy and partial removal of COVID restrictions in China. Governor Philip Lowe said recently that the Australian regulator would hardly follow suit of the US Fed and would not raise the key interest rate by 75 basis points.
The Reserve Bank of Australia is widely expected to increase the cash rate by half a percentage point at the meeting next week. So, the Australian regulator will lag behind the US Fed in terms of monetary tightening. Such prospects are putting pressure on the aussie. On Friday, it sharply weakened to 0.6850 against the greenback to the lowest level in two years. Now the AUD/USD pair is sliding within the corridor between 0.6791 and 0.6908.
Trying to predict prospects, investors pay attention to any clues to whether inflation has reached its peak. Apparently, any signs of the inflation plateau could signal improvement in global economic conditions. For the time being, investors do not see any signs of a steady economic recovery. Keep close tabs on financial markets on InstaForex TV channel! Stay tuned!
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