The US Dollar Rally Continues

 

The US Dollar rose overnight once again, propelled higher by rising US yields, hawkish Fed-speak and perhaps some delta-variant risk-hedging flows. The dollar index rose by 0.20% to 92.97 overnight, with a resistance test at 93.20 seemingly inevitable. That will open further gains to 93.50 and then 94.30. Only a fall through 92.60 changes the narrative.

 

The Australian Dollar fell through the bottom of its rising wedge overnight, reflecting rising risk sentiment from the virus and higher US interest rates. The fall through 0.7360 sees AUD/USD at 0.7320 this morning with an initial target of 0.7250, and if the US CPI outperforms tomorrow, it could fall to 0.7000 in the week ahead.

 

USD/JPY rose to 110.35 overnight, where it remains in Asia. A rally through 110.60 signals further gains to 111.60 initially. As a purely US/Japan yield differential play these days, the US CPI tomorrow night will be critical in signalling its next directional move. Both the Euro and especially the Swiss Franc look vulnerable to further losses for the same reasons. EUR/USD could test support at 1.1700. USD/CHF has gained 1.50% over the last two sessions to 0.9200. A high US CPI print should see the pair test 0.9270.

 

The US Dollar rally resumed in earnest versus Asian currencies yesterday, China aside. My fragile four of India, Indonesia, Malaysia, and Thailand could well be joined by the Philippines in the coming days, with the Peso retreating heavily over the last couple of days. Tapering by the Us Federal Reserve starting in Q4 will be a game-changer, as none of these countries is in any position to even think about tightening monetary policy in response. The relief valve will inevitably be weaker currencies unless they choose to burn through their admittedly impressive foreign currency reserves. Delta lingers in the background of all of them limiting gains anyway, but a firm US Cpi print tomorrow night sets up Asian FX fr another bout of weakness.

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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