US dollar remains on defensive

Asian currencies appear to be the new havens

Across the G-10 and commodity currency space overnight, multiple currencies traced out dangerous-looking potential reversal formations. The reason being today’s Georgia’s Senate elections, with markets reducing short US dollar positioning into today’s event. A Democrat clean sweep will almost certainly see a potentially abrupt reversal of the gains seen recently in currencies such as the Euro, British pound, and the Australian and New Zealand dollars, to name but a few.

USD/JPY narrowly avoided an outside reversal day overnight, that would have signalled dollar gains versus the yen. USD/JPY is hovering at 103.00 this morning, and further US dollar gains are being tempered by the Japan government’s decision on Thursday regarding Covid-19 states of emergency. If the government follows that course, USD/JPY will likely fall to near 102.00 on repatriation flows.

Asian currencies are bucking the trend, notably the Chinese yuan, with both the onshore and offshore variants rallying through 6.5000 versus the dollar overnight. The fall of USD/CNY and USD/CNH through 6.5000 appears to have sparked stop-loss selling and algorithmic traders adding to US dollar shorts. There may also be an element of haven buying in play, with the yuan finding favour as a hedge against US markets’ volatility. That will be an intriguing development for currency markets if proven correct.

The PBOC set a firm USD/CNY fixing at 6.4760 this morning, signalling that it remains comfortable with further CNY strength. I suspect that as long as CNY remains sensibly priced on a TWI basis from the PBOC’s perspective, they will continue to allow the US dollar to fall versus the yuan. USD/CNY is trading at 6.4500 this morning, off its session’s lows at 6.4300. Although some US dollar retracement can be expected ahead of the elections today in Georgia, the technical picture suggests that longer-term, USD/CNY will now target the 2028 lows around 6.2500.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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