Currency markets slumber

US dollar remains under pressure

Currency markets had a reasonably volatile session overnight, but after the dust settled were almost unchanged. The dollar index fell to 89.20 in intraday trading, a near two-year low, but finished near its opening level, near 89.45. The index has beat a modest retreat to 89.43 this morning.

The major currencies carved out modest gains overnight except for the yen. The cyclical Australian and New Zealand dollars once again were notable outperformers. AUD/USD rose 0.55% to 0.7800, and the NZD/USD rose 0.65% to 0.7300. Both have edged 10 points lower today, but the technical picture suggests both are buys on dips, with stimulus-fever almost certain to lift them higher in the coming days.

The Chinese yuan continues to consolidate its recent gains versus the dollar, ranging each side of 6.4500. The Indonesia rupiah has strengthened through 14,000 with USD/IDR falling to 13,915 today, the rupiah’s best levels since February 2020. USD/KRW is trading at 1087.00 today, just above support at 1080.00, a level that will probably see the Bank of Korea reappear to “smooth” the won’s ascent. The pattern is much the same across Asia, with local currencies at, or very near, multi-month highs.

The more sanguine attitude in currency markets versus equity and commodity markets likely reflects the extensive short US dollar positioning that has been in place over the New Year period. The rise in US bond yields has probably given currency markets pause for thought before hitting the US dollar sell buttons again. The US dollar is likely only gaining a temporary respite though. Once the Federal Reserve affirms its lower for longer rate stance, and the Biden economic agenda becomes more transparent, the greenback’s descent should resume.

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