Dollar Near One-Month High as Evergrande Risks

The dollar remained close to a one-month low as investors concentrated on two significant risks—a default by Chinese property developer Evergrande and a forecast tightening of U.S. monetary policy. In early Asian trade, the dollar index was 93.226, not far from Monday’s one-month high of 93.455.

The euro traded at $1.1725 after settling at a one-month low of $1.1700 on Monday.

The U.S. dollar fell to a seven-month low of 127.93 yen as the safe-haven Japanese yen benefited from the cautious mood. The dollar was trading around the bottom end of its trading range since mid-August, at 109.165 yen.

Later in the day, the Bank of Japan should maintain its policy stance. Due to concerns about Evergrande, the market remains risk-off, with the dollar and the yen both supported. 

Evergrande, previously China’s top-selling property developer, is approaching a critical deadline on Thursday. It must pay $83.5 million in interest on its March 2022 bond. Suppose, Evergrande fails to settle the claim within 30 days of the scheduled payment dates. In that case, the bonds will be in default. Investors are also waiting to see how mainland Chinese markets react when they resume on Wednesday after a four-day holiday.

The Chinese yuan was on the defensive in offshore trade ahead of onshore trading, trading at 6.4845 per dollar, close to a one-month low of 6.4878 established on Monday.

Fed liftoff

Another key focus for the day is the Federal Reserve of the United States. It should provide additional signals on its future policy course, including when to begin tapering asset purchases and hiking interest rates.

If the upcoming data holds up, the central bank should declare its intention to reduce its enormous bond purchases in November. The so-called “dot plot” depicts policymakers’ economic and rate projections. It will be scrutinized for signals when the Fed may raise interest rates from near zero. Perhaps tapering is pre-programmed. The most important for the currency market is how dot-plots or Powell’s comments affect U.S. rate expectations, said JP Morgan’s Sasaki.

Elsewhere, the Canadian currency barely changed. It rose on Tuesday when Prime Minister Justin Trudeau’s Liberals won a close election. Bitcoin fell to a 1-1/2-month low of $39,573, plummeting more than 25% from its four-month peak two weeks ago.

The digital currency was recently worth $40,450, while ether was worth $2,732, a plunge of more than 30% from a four-month high earlier this month.