US yields support dollar strength

US yields continue underpinning US dollar strength with the dollar index rising by 0.32% to 99.12 overnight, where it remains in Asia today. Weakness in the yen also helped lift the dollar index which traded as high as 99.36 intraday. A rise through 99.45 will signal the next leg higher while only a fall through 98.40 delays.

Yen can’t find its footing

USD/JPY is having another volatile day, having risen nearly 300 points intraday to around 125.00 overnight, before falling to 124.00 by the end of the session. In Asia, Japanese officials making the usual “watching markets closely” type comments have been enough to push USD/JPY 55 points lower to 123.45. At the heart of the yen weakness is the US/Japan ever-widening rate differential. The Bank of Japan has extended its 0.25% bid on the 10-year JGBs through till Thursday. That should put a floor under USD/JPY unless US yields plunge for some reason. That said, JGBs remain stubbornly at 0.25%, raising fears the BOJ may struggle to cap yields with QE. Those opposing inputs likely leaves USD/JPY bouncing between 123.00 and 125.00 for the rest of the week.

EUR/USD recovered from intraday lows around 1.0945 to finish almost unchanged at 1.0985 overnight, where it remains in Asia. A Ukraine-Russia breakthrough at today’s talks could spark a relief rally targeting 1.1100. Otherwise, with a very heavy concentration of options expiries between 1.0980 and 1.1000 today, EUR/USD is likely to range between 1.0970 and 1.1000.

AUD/USD fell 0.30% to 0.7490 overnight, but NZD/USD fell by 0.90% to 0.6895 as AUD/NZD buying swept the market after the cross broke higher through major resistance at 1.0800. AUD/NZD should target 1.1000 now, which will cap NZD/USD gains as markets start to price faster hiking of rates in Australia, with a lot of hiking news already priced into the New Zealand yield curve. In the bigger picture, both antipodeans continue consolidating near the top of their recent ranges versus the greenback. A lift in risk sentiment opens further gains.

Asian currencies are range trading once again overnight and today, with no clear directional inputs after a neutral USD/CNY fixing today. Asian currencies have shown little positivity to oil’s overnight fall and look like they are in a holding pattern ahead of Friday’s US Non-Farm Payrolls. A breakthrough in Ukraine-Russia talks would be a net positive for regional currencies.

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