Risk aversion lifts the dollar

Crypto plunge boosts US dollar

The carnage sweeping the crypto market spilt into other asset classes overnight, leading to a bout of risk aversion sweeping forex markets. The US dollar was, naturally, the prime beneficiary, the dollar index climbing 0.44% to 90.17. Like equities, Asian currency markets are cautious today, with the index edging down to 90.13 as sentiment cautiously returns.

 

The risk proxy Australian and New Zealand dollars led markets lower, both falling nearly one per cent overnight. But previous leaders like the euro and sterling also retreated. The Australian dollar tested and held its 100-DMA at 0.7727 overnight, rising 0.25% to 0.7750 today. A fall through 0.7680 signals the AUD/USD is not over. NZD/USD fell through its 100-DMA at 0.7180 overnight and is struggling to reclaim it this morning. The kiwi looks the more vulnerable at the moment and could fall to 0.7000 in the sessions ahead if market nerves elsewhere remain elevated. Today’s budget has had no currency impact.

 

EUR/USD is trading at 1.2180 this morning, but its longer-term bullish technical picture remained intact above 1.2100. Similarly, GBP/USD has retreated to 1.4115, with only a loss of 1.4000, changing an otherwise very positive technical view.

 

With USD/CNY settled into a 6.4000 to 6.4500 trading range, for now, ignoring the noise in other parts of the currency space, Asian currencies retreated only modestly overnight. USD/MYR has risen back above 4.1400 as Covid-19 cases high a daily record in-country. The virus situation is likely to limit any ongoing gains versus the greenback, even if they are proving resilient to inflation nerves.

 

The US dollar’s next directional move in the near term is likely to be decided by whether the crypto-rout continues or not and whether tonight’s US data lets the inflation genie out to play again. Investors will be keeping an eye on Initial Jobless Claims and the Philly Fed Manufacturing Index for April. Weekly claims could dip below 450,000 this week, with the Philly Fed Index climbing above 50.0, setting another multi-decade high. Along with the US 10-year TIPS bond auction, improving data could give markets another little inflation nudge again.

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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