The US dollar retreats

US dollar dips after weak nonfarm payrolls

Perhaps the most surprising move post the US Non-Farm Payrolls, came from the US dollar, which staged a sharp retreat versus major currencies, even as US yields rose. The dollar index slumped 0.52% to 95.74, before recovering to 95.90 in Asia today. I am at a loss to explain the move lower, in all honesty. I am doubtful that international investors selling US equities alone could be responsible for it. In the bigger picture, the dollar index is mid-range at 95.90, and as previously stated, I am waiting for 95.50 or 96.50 to break to signal the US dollar’s next directional move.

EUR/USD and GBP/USD were the main winners of US dollar weakness on Friday, both gaining around 0.50% to 1.1360 and 1.3590. GBP/USD remains steady and has resistance just above 1.3600 which will signal a further rally to 1.3800 if broken. EUR/USD’s rally looks unconvincing and only a close above 1.1400 will lessen the bearish outlook. Risks are still skewed towards a retest of 1.1200, especially if German Bund yields stop rising. USD/JPY remains a bid on dips from 115.50 to 115.00 as long as US yields remain at these levels, targeting 118.00 initially.

AUD/USD and NZD/USD have added 0.20% today to their modest Friday gains, trading at 0.7195 and 0.6770 respectively. Both continue to be bounced around on RORO (risk-on, risk-off) sentiment swings, but ultimately, are range-trading right now. Key levels for AUD/USD and NZD/USD are 0.7150 and 0.7300, and 0.6700 and 0.6850 for Kiwi.  USD/CAD fell 0.65% to 1.2640 on Friday, where it remains in Asia. The CAD strength is surprising, and I suspect the rally in oil and industrial metals is providing a back-stop. USD/CAD has support at 1.2600 and resistance at 1.2700.

Asian currencies remain mostly towards the weaker side of their recent range versus the US dollar, the exception being the Indian rupee which seems to be receiving hot money flows once again as the China outlook darkens. USD/KRW remains above 1200.00, USD/PHP at 51.40, USD/IDR at 14,400.00, USD/MYR at 4.2040, and USD/THB at 33.700. USD/CNY and USD/CNH look poised to retest 6.3800 shortly, which would put downward pressure on regional FX.  The key directional driver this week will be the US CPI data with high CPI prints lifting Fed hiking expectations and pressuring Asian FX.

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