Covid restrictions boost US dollar
In the absence of any drivers from weekend news and a quiet data calendar, Covid-19 has shifted back to front and centre in currency traders’ minds. On this metric, none of the news emerging this weekend is positive, with Hong Kong and parts of Australia increasing restrictions, and India hitting the dubious milestone of one million official cases. Nagging concerns are growing in volume regarding the United States as well, with Covid-19 threatening the nascent economic recovery there.
This has resulted in the US dollar gaining strength across the board today, as trader’s start the week in risk-aversion mode. Only the euro, somewhat surprisingly, is holding its own, given the failure of the weekend’s pandemic recovery summit. The street is clearly pricing “something” happening still, and the euro’s strength suggests that a move higher to 1.1500 this week is not off the table.
Major pairs dip
The US dollar has shown broad gains at the start of the week, with the result that the majors are in broad retreat. GBP/USD has fallen 0.30% to 1.2526, AUD/USD is also lower by 0.30% at 0.6975, USD/JPY has risen by 0.30% to 107.35 and NZD/USD has retreated 0.25% to 0.6540. Despite the noise, the majors are still well and truly stuck in range-trading mode. The inability of AUD/USD and NZD/USD to close above 0.7000 and 0.6600, respectively, is raising concerns though, that a near-term downward correction could occur.
Over in Asia, the US dollar has not gained ground against the Chinese yuan. A stronger PBOC fix at 6.9928 today has seen the CNY hold its own at 6.9975, while the SGD, IDR and MYR are gently lower versus the greenback.
We expect the US dollar to remain in the ascendant throughout the Asia session, with Covid-19 stealing the headlines on an otherwise quiet news day.
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