Vaccine progress, EU deal send USD lower

Vaccine hopes give a booster shot to US dollar rotation

The dollar index fell by 0.20% overnight to 95.82, as the US dollar renewed its retreat versus developed market currencies. Positive news on the Covid-19 vaccine front, and Eurozone pandemic recovery fund progress, awoke currency markets from their recent slumber.

The EUR/USD rose 0.30% to 1.1445 overnight and has risen to 1.1465 in Asia as reports emerge that a final Eurozone deal has been agreed. EUR/USD looks set to test 1.1500 in the European session. GBP/USD rose 0.80% to 1.2660 overnight, with Astra-Zeneca’s vaccine news. This morning GBP/USD is resting its 200-day move average (DMA) at 1.2695, with a daily close above, opening further gains to 1.2800 in the days ahead.

The trade-centric commonwealth commodity currencies also outperformed. The Australian, New Zealand and Canadian dollars all rose 0.30%. The AUD/USD has shrugged off dovish comments from the RBA Governor this morning, breaking 0.7000 on its way to 0.7020. The RBA minutes from the July meeting indicated that the RBA isn’t particularly concerned with the exchange rate, as the AUD has racked up strong gains in recent months. AUD/USD now looks set to test its June high at 0.7065.

Onshore Chinese yuan has also strengthened overnight, with USD/CNY at 6.9900 today. USD/CNY support is nearby at 6.9800 and is likely to break by tomorrow, with a more robust CNY fix by the PBOC almost certain given currency moves today. That would leave USD/CNY poised to drop to the 6.9500 regions.

Regional Asia has been the laggard of late, as economic worries have sapped the strength from the Singapore dollar, Thai baht, Indonesian rupiah and Malaysian ringgit. The US dollar weakness seen elsewhere has yet to be seen in regional Asia. That state of affairs is unlikely to continue if all things stay as they are. That should set up a period of outperformance by regional Asian currencies if the bullish sentiment elsewhere maintains its momentum.

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