The big news this week, as we start trading, is the sudden collapse in China's stock market. Stocks in Shanghai lost more than 8% as the Asian markets opened today, signalling a massive failure of China's government to both manage an emerging financial crisis and play down an apparent economic slowdown. It turns out that last week's devaluation of the USD/CNY was only the first act in a late-summer Chinese drama.
Of course, a stock move as big as this is going to be reflected in the forex and commodity markets and it was as US oil prices dropped below $40. The commodity-linked and emerging-market currencies took especially hard hits. The Canadian dollar continued its fall, and now stands at 1.3242 to the US dollar. The Australian dollar, with its close exposure to China's commodity import markets, dropped as well, to 0.7244 to the US dollar. In emerging markets, the biggest news came from, of all places, Kazakhstan, a country most of us have never heard of. The Kazakh government, an oil-exporter caught in a trade vice between Russia's depreciating ruble and China's devalued yuan, abandoned their currency peg for a free float, with an immediate result of a 25% drop to record lows against the US dollar. Other emerging markets, facing equally stiff competition, are likely to follow suit. The Malaysian ringgit traded at 4 to the dollar for the first time ever and stands at 4.2430. The South African rand is at 13.2006 to the greenback; also a record low.
The euro and the yen turned out to be forex's winners over the weekend. The euro, bolstered by news of the Greek bailout gaining acceptance as well as weakness in other currencies, now trades at 1.1462 to the US dollar, while the yen, generally a safe haven currency due to Japan's overall stability, now trades at 120.67. The US dollar has, for months now, basically been moving sideways – a gain against one currency offset by a loss against another.
The other big market news, touched on above, is the continuing drop in the price of oil. It's definite now: the rally in oil over the first half of this year was just a blip. Both major oil prices, Brent and West Texas, have dropped below their recent lows, with Brent trading at $43.34 per barrel and West Texas at $38.76. As the summer ends, demand typically drops, but the major producers are still pumping at high capacity, so look for oil to stay low.
In metals, silver is still up for the month, but down from its recent high. The spot price is now $14.96 per ounce. Gold is doing better at $1,155.61 per ounce, but even so it has lost about $5 from last week's peak. Precious metals generally have rallied over the last few weeks as the stock market collapse accelerated in China.
Disclaimer: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.