US dollar steady after overnight gains

US dollar piggybacks on higher US yields

The US dollar strengthened markedly overnight as US bond yields firmed after Mr Powell disappointed the doves. The dollar index rose through its 100-DMA on its way to a 0.75% gain to 91.63. Although unchanged in Asia, the index is poised to break resistance a hairs-breath away at 91.65 later today. That would target further increases to 92.25.

Among the majors, EUR/USD has fallen to support at 1.1960, and a close below here tonight signals more losses to 1.1800 next week. GBP/USD fell to 1.3900, with multi-month channel support at 1.3800 still some way off. That needs to break to telegraph a much deeper correction. By contrast, USD/JPY rose 100 points to 108.00 overnight as the US/Japan yield differential widened. Although overnight on a short-term basis, some consolidation here sets the scene for a rally to 110.00 next week.

Both the Australian and New Zealand dollars broke supports overnight. With commodity prices except for oil in retreat overnight as well, both Antipodeans could potentially fall another 200+ points into early next week.

Asian currencies have given ground to the dollar overnight but have steadied in Asia along with local equity markets. The PBOC set a much higher USD/CNY fixing at 6.4904 this morning, but the USD/CNY spot has not followed suit, trading at 6.4725. The positive economic noises coming from the NPC in Beijing today, have limited the fallout from the US dollar rally overnight. Next week, a move above 6.5000 could crack investors resolve on the Asian currency front, with the Indonesian rupiah and Philippines peso being the most vulnerable regional currencies.

The rise in US yields which apparently has been given a green light by Chairman Powell will be of some concern in Asia. Most of the region runs direct or dirty pegs to the US dollar; the rise in US yields means that parts of Asia will be forced to tighten into what is still-muted domestic demand across the region. Either that or allow their currencies to depreciate.

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, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as 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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