USD again in demand as safe haven after PBoC's decission

The PBoC today's decision to lift the USD-CNY fixing by almost 2% has thrown the market into turmoil. Concerns about the Chinese economy have resurfaced again and are weighing on the currencies of those countries for which China is an important trade partner, in particular the AUD and the NZD. What is somewhat more surprising is that safe-haven demand for USD has jumped this morning. This has not always been the case during Chinese market fluctuations in the last few weeks. 

In fact, however, external risks for the USD from this side should not be underestimated, says Commerzbank. While the Fed obviously focuses on domestic developments, Fed Vice-Chairman Stanley Fischer confirmed only yesterday that he and his colleagues are currently less worried about the US labor market than about inflation. 

To a significant extent, the low inflation rate is due to temporary factors, such as the oil price decline. However, the declining oil prices have started to drag down long-term inflation expectations again - and this development is certainly a cause for concern, as it does not create the ideal environment for a pick-up in inflation any time soon. And since a pronounced economic slowdown in China would weigh not only on global growth, but also on oil prices, it would not surprise anyone if the recent developments were thought to be negative for the USD, too, adds Commerzbank.