The US dollar rises a yield tailwind

The US dollar powered higher overnight as US bonds sold off aggressively. Once again, the catalyst for the dollar’s gains were the upward movement in US Treasury bonds. The US 10-year rose to 1.72%, trading at 1.75% intra-day. The 30-year rose to 2.47% as the US curve continued to steepen. The dollar index rose 0.46% to 91.86, near the top of its weekly range. The dollar index now threatens 92.00, with a weekly close above signalling further gains to 92.60 next week. However, the US dollar is moving solely on the back of directional moves in US yields at the moment, and it is that market that will determine its direction.

Major currencies were in full retreat overnight except the Japanese yen. EUR/USD fell to support at 1.1900, with the single currencies outlook clouded by a darkening Covid-19 landscape once again. A fall through 1.1800 next week signals that a substantial downward correction has started.

As ever, the US dollar strength manifested itself most notably in the APAC dollar currencies. Both the AUD and NZD fell sharply by 0.65% and 1.05%, respectively. Notably, both rallied to their breakout levels this week, but failed ahead of them, a bearish technical development. AUD/USD has support at 0.7700, and NZD/USD at 0.7150. A weekly close below those levels signals more losses next week. Both continue to be an Asian proxy to higher US yields and the inflation fears, with most of the rest of Asia running dirty pegs to the greenback.

On that note, Asian currencies retreated overnight and have edged lower today. The scale of the fallout has been limited as USD/CNY remains ensconced around the 6.5000 level. The ever-present threat of intervention limits volatility in the spot market, even as the US bond sell-off continues. The Indonesian rupiah and Indian rupee remain Asia’s most vulnerable currencies, but a move higher by USD/CNY through 6.5500 next week may shake investor resolve across the rest of the regional market.

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