US dollar climbs as risk appetite sinks

US dollar rises on geopolitical/economic nerves

The US dollar rose into the end of the week on Friday as investors loaded up on weekend risk protection. Nothing has changed over the weekend to alter the need to hold US dollars; if anything, with the US seemingly about to ban Russian oil imports, and no good news from Ukraine, the situation has hardened.

The dollar index has risen by 0.57% this morning to 99.06, but the US dollar pain has been unevenly spread. European and Asian currencies have borne most of the pain, with news circulating that the Bank of Korea has been intervening to sell the US dollar today versus the Won. EUR/USD has tumbled by 0.80% to 1.0850, and is, ominously, not far from long-term support at the 1.0800 region I mentioned last week. A weekly close below 1.0800 potentially signals a move well below 1.0000. GBP/USD has fallen by 0.30% to 1.3200 and is eyeing support at 1.3150, failure of which will see GBP/USD retest 1.3000.

Elsewhere, the commodity-centric Australian and New Zealand dollars have actually rallied, rising 0.45% to 0.7410 and 0.6890 respectively, while the Canadian dollar is unchanged versus the greenback. High commodity prices and expectations of higher interest rates are combined to lift the Three Amigos, nullifying their risk-sentiment status. The technical picture is especially constructive for AUD/USD and NZD/USD and suggests at least another 100-150 points of gains in the sessions ahead.

The Asian currency sell-off is also uneven. The won, baht, New Taiwanese dollar, and Philippine peso are sharply lower, as is the Indian rupee, with the BOK intervening this morning. The Indonesian rupiah and Malaysian ringgit, both major commodity exporters, are holding firm with the Singapore dollar finding support by association. There appears to be a major split developing in the Asian currency grouping along the lines of short commodity importers/long commodity exporters. Of this grouping the Indian rupee is probably the most vulnerable, being also at the mercy of hot-money inflows and outflows from the equity market. A retest by USD/INR of 77.40 seems inevitable.

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