The US dollar continues to rise

US dollar extends rally

The US dollar rose overnight, notably booking strong gains against the euro. US yields were quiet at the short end, although they eased slightly in the 10 to 30-year tenor, deepening the 2s-10s inversion. The dollar index rose 0.43% to 98.99 where it remains in Asia.  The index continues grinding towards resistance at 99.45, while major support is now distant at 97.70.

EUR/USD slumped, falling 0.70% to 1.0970 as concerns mounted that European sanctions on Russian energy were on the way. The fall overnight has left the single currency mid-range between major support/resistance at 1.0800 and 1.1200. A fall through 1.0950 sets EUR/USD for a retest of 1.0900. A firming US yield curve will continue to limit euro gains from here, even if a Ukraine talks breakthrough occurs.

USD/JPY traded sideways overnight, rising slightly to 122.70 as US bonds had a relatively narrow range. Comments from Japanese officials have pushed USD/JPY slightly lower to 122.50 this morning but have otherwise had a minimal impact. The correction lower has now run its course and the US/Japan rate differential will now continue building upward pressures. Key levels are 121.25 and 123.25.

AUD/USD booked a solid 0.70% gain to 0.7520 overnight as energy prices surged once again. It is now in a holding pattern ahead of the RBA rate decision shortly. A surprise hike and change in policy outlook will see resistance at 0.7550 disappear, and AUD/USD rally towards 0.7700. An unchanged RBA and policy outlook could see a dip back to 0.7450, but it is likely to be short-lived as markets turn their attention to future meetings and a change of tone.

A China holiday today has dampened trading volumes in Asian currencies. The US dollar booked small gains versus Asia FX overnight, mainly due to increasing nerves surrounding China’s covid situation. Asian currencies overall are continuing to mark time until China returns tomorrow, or we see another big move in US bond yields.

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