US dollar fades as risk appetite rebounds

US dollar retreats as US yields dip

Overnight, a series of Federal Reserve Officials fanned out and drummed a familiar message, that higher inflation levels are transitory. It has become business as usual in the market, in the sense of dip-buying buy everything. US long-dated yields retreated, which sent the US dollar lower against major currencies overnight, in particular the Asian currencies.

 

With Wall Street deciding to have a lower inflation-risk session, risk appetite rebounded, leading to a rotation out of haven US dollars. The dollar index fell 0.20% to 89.84, edging lower again to 89.77 in Asia. Overall, the dollar index remains within its recent 89.60 to 90.30 range, with its next directional move signalled by a break of one of those levels.

 

The story is much the same amongst the major currencies. EUR/USD and GBP/USD have risen to 1.2225 and 1.4180, respectively in Asia, with resistance nearby at 1.2250 and 1.4245. Both pairs continue to trace higher daily lows, and it will probably take a sudden deterioration in the global recovery story to delay further rallies ahead.

 

Things are getting more interesting in the Asian currency space today, with USD/CNY falling to near two-year lows overnight. USD/CNY fell again to 6.4050 in Asia, before recovering to 6.4120 after rumours swept the market that state banks were on the bid at 6.4000 for the PBOC, capping yuan gains. Interestingly, the offshore (and more freely trading) USD/CNH fell as far as 6.4005 before bouncing to 6.4060. First the first time in a while, USD/CNH has diverged from USD/CNY, showing more yuan strength.

 

A fall through 6.4000 by the onshore yuan would be a strong signal of more strength ahead, and by default, more gains in the Asia FX space versus the US dollar in general. That will need the inflation is slain or transitory narrative to continue, no sure thing right now with plenty of whipsaw price action occurring in the 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