The US dollar reverses losses

Dollar recovers on Russia-Europe energy spat

The US dollar rebounded overnight as the energy payment standoff with Russia and Europe took a turn for the worse, and quarter-end demand for US bonds boosted dollar demand. The dollar index rose 0.52% to 98.35, adding another 0.13% to 98.48 in Asia. Some weekend risk-hedging buying could well be supporting the greenback in Asia. Support at 97.70 has held nicely, forming a rough triple-bottom. That support level remains key to the US dollar’s direction into next week.

EUR/USD retreated overnight as the euro/rouble payment standoff with Russia became murkier. Markets were lulled into complacency by Ukraine/Russia negotiations, while President Putin telling the German Chancellor it was ok to pay in euros, only to reverse that overnight, sent a curveball to the single currency while giving a harsh lesson on caution regarding anything that Russia says. EUR/USD fell 0.82% overnight to 1.1067 where it remains in Asia. EUR/USD remains stuck at the bottom of its overnight range and the risks have now skewed to the downside once again. Immediate support/resistance are 1.0950 and 1.1200.

It looks like the sell-off in USD/JPY was in no small part due to financial year-end repatriation flows, as the pair has sharply reversed yesterday’s losses in Asia. USD/JPY has jumped 0.77% to 122.63 today, despite some oblique jawboning by Japanese officials. US yields may have dropped slightly, but so have Japanese ones after the BOJ operations this week. The US/Japan rate differential trade is back with a vengeance today. Key levels are 121.25 and 123.25.

Soft Asian PMI data and a stronger US dollar have seen Asian currencies in retreat today with USD/NTD rising 0.30% to 28.697, and USD/THB rising 0.33% to 33.378. USD/KRW is also 0.20% higher at 1215.80, meaning the main beneficiaries of a weaker US dollar this week are all quickly reversing those gains. USD/CNY has fallen to the bottom of its 6.3400 to 6.3900 range, and it will be interesting to see if authorities set a series of weaker CNY fixes next week, having signalled that CNY’s rally had gone far enough. From here I expect Asian currencies to mark time until tonight’s US data. A strong US Non-Farm release likely sees Asian currencies resume their downtrend next week.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as 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
Jeffrey Halley

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