The US dollar rises in Asia

Biden stimulus announcement could boost dollar

The US dollar traded sideways on Friday as US yields tracked higher. It rallied versus the Japanese yen and gave back some recent gains versus the euro and British pound. The dollar index finished 0.12% lower at 92.74, creeping higher to 92.78 in Asia in subdued trading.

In Asia, the US dollar has risen 0.20% versus the Canadian and New Zealand dollars while remaining stable against the Australian and other major currencies. USD/CAD has risen through its one-year downtrend line to 1.2605 today, signalling gains to 1.2800 in the week ahead. New Zealand markets have taken the new government property measures negatively, expecting them to crimp growth. NZD/USD has fallen to 0.6985 and would target 0.6800 going forward.

This week has some significant event risk. On Wednesday, President Biden will announce the first concrete details of the next stage in the US stimulus, the Build Back Better programme. Increased taxes on corporates and high-earners will help pay for some of it, but there is no doubt that more debt issuance is on the way. US yields crept higher on Friday and may potentially spike again come Wednesday.

That may lead to more US dollar strength and renewed rotational flows on stock markets. China held the daily USD/CNY fix at near unchanged levels today to relieve most of the rest of Asia. With a packed US data calendar that could well outperform, and more spending from President Biden, rising US yields leading to a rising US dollar could see China’s USD/CNY fixes march higher. Asian currencies, with their Yuan event-horizon, and dirty pegs to the US dollar, could finally take fright this week and retreat to lower ground.

The US will release key events later this week, including ADP National Employment and US Non-Farm Payrolls. All should outperform as the US recovery deepens, which should propel the US dollar higher at the expense of Asian currencies. The risk correlated Australian, New Zealand and Canadian dollars used as a proxy to the dirty peg Asian currency universe are also poised to suffer more.

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