US dollar higher as investors seek safety
Safe-haven flows appear to be continuing to flow into US bond markets, with yields falling once again overnight. Those inflows are seeing US dollar buying by international investors, which sees the remaining greenback firm, despite the fall in US yields. Until nerves calm sufficiently about the impact of the delta variant on the global recovery, that strength should continue, especially if the ECB is dovish at tomorrow’s policy meeting.
The dollar index climbed 0.15% to 92.96 overnight, edging higher to 93.03 in Asia. The dollar index has now closed above previous resistance at 92.85 for two consecutive sessions, which signals a further rally targeting resistance at 93.45, its 2021 high.
EUR/USD remains treading water at 1.1775, as the single currency awaits tomorrow’s ECB policy meeting. A move to a fixed 2.0% inflation target by the ECB tomorrow would be a dovish evolution, suggesting more easing ahead. That would see support at 1.1750 tested, opening up a potentially sizeable downward correction that could target 1.1600 and then 1.1400. Reopening concerns and spiralling virus cases has kept GBP/USD well offered this week, and it remains vulnerable to a deeper correction, potentially reaching 1.3200.
Today’s soft Retail Sales data from Australia has seen AUD/USD fell 0.30% to 0.7310, dragging NZD/USD lower to 0.6910. With widening virus restrictions in Australia and global risk sentiment still fragile, AUD/USD is vulnerable to a deeper correction to 0.7200 and NZD/USD to 0.6800. A new asynchronous global recovery reality is also ensuring that regional Asian currencies stay offered. USD/MYR, USD/SGD, USD/THB, USD/IDR and USD/KRW remain near recent highs, and with downgraded recovery expectations now, I expect Asia FX to underperform in H2.
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