The US dollar rises on higher US yields

US dollar gains ground

The US dollar marched higher overnight, benefiting from a rise in US yields after a less-dovish Powell and a small amount of risk aversion buyers. The implications of a Fed taper have been making their way through currency markets for a while now, even as equity markets stayed in their own dreamland space. The dollar index climbed 0.35% overnight to 93.74, before easing slightly in Asia to 93.70 as US equity futures rally. The index is now locked and loaded for a further rally above 94.00.

EUR/USD was sidelined overnight, easing to 1.1685 this morning. 1.650 to 1.1750 continues to contain nicely. The British pound suffered, GBP/USD tumbling by 1.20% to 1.3540 as petroleum shortages persist and winter of discontent fears rise. GBP/USD crashed through major support at 1.3610 overnight and this sets up a much larger move lower targeting 1.3300 initially. The spike higher in US yields lifted USD/JPY 0.45% higher to 111.50 overnight. It will ignore the politics of a new Japanese PM today, and a daily close above 111.70 will signal the start of a directional move higher targeting 114.00. Much will depend on the direction of US yields, however.

AUD/USD and NZD/USD tumbled by around 0.70% overnight on rising fear gauges, with AUD/USD catching an energy price tailwind today, rising 0.20% to 0.7250. NZD/USD has continued falling by 0.15% to 0.6950 today after Covid-19 cases spiked in Auckland. If the delta variant jumps the fence around Auckland, NZD/USD has a lot more downside, having broken support at 0.6980 overnight.

Asian currencies retreated overnight, led by the won and the baht. If we are indeed on the cusp of a taper repricing in markets, the Thai baht, Korean won, Indonesian rupiah and Philippine peso will be the most vulnerable with monetary policies completely out of Fed-sync. High energy prices and a reopening economy appear to be sparing the Malaysian ringgit from the fallout for now. China’s PBOC continues to set neutral USD/CNY fixes signalling which will provide some stability to the Asian FX space.

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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