The US dollar rises versus Asia

Rising US yields boost US dollar

The US dollar held steady versus most majors overnight, with reduced haven flows on Ukrainian hopes offset by rising US yields. The dollar index finished 0.04% lower at 99.09, before easing another 0.25% to 98.835 in Asia. However, versus Asian currencies, the US dollar continued to grind higher and with the USD/Japan rate differential widening overnight, USD/JPY has exploded higher to 118.30. With the BOJ as dovish as ever, and concerns mounting over Japan’s rising import bill, USD/JPY should target 120.00 if this week’s FOMC is as hawkish as expected.

 

Most of the majors are rallying today in Asia as oil has fallen 4.0%, giving renewed momentum to the peak Ukraine trade. EUR/USD has rallied by 0.40% to 1.0983, and GBP/USD has risen 0.35% to 1.3050. EUR/USD remains uncomfortably close to multi-year support at 1.0800, and its bearish out won’t change unless it rises through 1.1200 and 1.1400. AUD/USD and NZD/USD are holding steady at 0.7190 and 0.6750 respectively, as reduced Ukraine nerves give a temporary reprieve from the buffeting of sentiment flows.

 

USD/CNY has risen sharply to 6.3735 this morning after yet another markedly stronger USD/CNY fix. Beijing seems to be signalling that the yuan rally is over as it circles back to its old playbook of a weaker currency to support growth. That will be another headwind to Asian currencies which mostly run dirty pegs to the US dollar in some form or manner like China. With the FOMC due to hike this week, rates are going nowhere in Asia and it faces rising import bills from the commodity rally, Asian currencies are set to endure prolonged weakness. It is notable that the fall in oil prices these past few sessions has produced no meaningful rally in regional currencies.

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