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Asian Stock Market Grapples with Evergrande Fallout; Eyes on Central Banks’ Moves

The United States dollar (USD) is the official currency of the United States, governed by the Federal Reserve and the U.S. Department of the Treasury. Originating from the Coinage Act of 1792, it serves as a standard unit of value and medium of exchange, both domestically and globally. The dollar is widely held as a reserve currency by other nations and is commonly used in international trade, notably in the pricing of commodities like oil. It comes in various denominations, both in coin and paper form, and is subdivided into 100 cents. Its role as the world's dominant reserve currency grants the U.S. economic advantages but also draws criticisms regarding its influence over global financial systems.

The Asian stock market has shown mixed reactions as concerns surrounding the beleaguered real estate developer, Evergrande Group, continue to escalate. As the region’s investors brace themselves for upcoming rate decisions from major central banks, the Hang Seng index edges closer to a 10-month low.

The Evergrande Crisis: Impact Felt Across Markets

China’s SSE Index managed to trade higher, witnessing a 0.06% increase, standing at 3,119 despite the Evergrande turmoil. Meanwhile, the Shenzhen Component Index registered a 0.36% ascent, reaching 10,181. In stark contrast, Hong Kong’s Hang Seng found itself in a tight spot, dropping to 18,014, marking one of the most substantial regional declines. Similarly, South Korea’s Kospi and Taiwan’s Weighted Index were not spared, slipping by 0.88% and 1.26% respectively.

Evergrande’s woes deepened as its stock plummeted nearly 20%, primarily due to a postponed decision on its debt restructuring. The situation was further exacerbated by reports suggesting that the Chinese police detained some employees from Evergrande’s wealth management unit in Shenzhen, sparking concerns of a tighter government grip on the embattled developer.

Central Banks in the Limelight

As the week unfolds, all eyes will be on the US Federal Reserve’s upcoming meeting, slated for Wednesday. The consensus in the market strongly indicates that the Fed will opt to hold its current interest rate. Simultaneously, the People’s Bank of China (PBOC) is also poised to make its decision regarding its key loan prime rates this Wednesday. However, market insiders largely believe that PBOC will retain these rates at their current historic lows. To round off the week, the Bank of Japan (BOJ) has its meeting on Friday, with most anticipating a continuation of its current negative interest rate policy.

USD Index Experiences Downward Pressure, Awaits FOMC Decision

The USD Index (DXY) is witnessing a slip, continuing from Friday’s decline, landing in the low-105.00s zone as markets prepare for the bell to ring in the European trading session.

A Glimpse at the Index’s Movement

Following a significant peak within the 105.40/50 band during the previous week, the index has embarked on a correction, retreating for two consecutive sessions. This decline aligns with a dip seen across US yields of various maturities. Market sentiment seems inclined towards the US Fed maintaining its interest rates in the FOMC event set for September 20.

On the data front, the market’s focus is on the NAHB Housing Price Index for September and the Long-Term TIC Flows for July.

What Lies Ahead for the USD?

The recent surge in the greenback appears to have met resistance near the 105.50 mark. With the FOMC event on the horizon, traders are predicting a phase of consolidation for the index. The US economy’s robust health continues to underpin the dollar’s strength, reinforced by the Federal Reserve’s ‘tighter-for-longer’ narrative.

This week in the US, several pivotal events are lined up, including the NAHB Housing Market Index, Net Long-Term TIC Flows, Building Permits, Housing Starts, MBA Mortgage Applications, the anticipated Fed interest rate decision, and a slew of other reports, rounding off with the Flash Manufacturing/Services PMIs on Friday.

Key Points to Watch

Market chatter is rife with debates on the trajectory of the US economy – will it be a soft or hard landing? Speculations of potential rate cuts in early 2024 are also in the mix. Geopolitical tensions with Russia and China are simmering in the background.

As for the immediate USD Index levels, it is currently down by 0.13% at 105.18. Breaching the 104.42 mark (the weekly low as of September 11) could pave the way for further declines, possibly testing the 103.02 (200-day SMA) level. Conversely, the next significant resistance is seen at 105.43, followed by the 105.88 mark, culminating in the pivotal 106.00 round level.

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