Currency markets move sideways

US dollar in calm waters

Currency markets contented themselves with consolidating recent moves, with no data of note released overnight to shift expectations materially. The dollar index was unchanged overnight at 92.69 but has edged 0.15% lower to 92.55 in Asia. Today, the primary movers have been the Australian and New Zealand dollars, which have dragged the euro and sterling higher, depressing the dollar index.

NZD/USD has risen 0.53% to 0.7035 today after Covid-19 cases fell for the third day in a row, raising hopes that the kiwis have nipped the delta variant in the bud quickly, prompting reopening hopes. NZD/USD looks to have triggered stops as it rose through 0.7010. That has lifted the AUD/USD 0.20% higher to 0.7310. NZD/USD has now unwound nearly all of its delta sell-off, which bottomed at 0.6800 last week. Should New Zealand have dodged another virus bullet, a rise by NZD/USD through 0.7100 could prompt further rallies to 0.7300, possibly quite quickly, as it will put the postponed RBNZ hikes back on the table.

USD/CNY has shown no reaction to the soft PMI data, being unchanged at 6.4660 today. Looking ahead, with another RRR cut on the horizon now and likely more stimulus domestically and to boost exports, a slightly weaker yuan would be another piece of the puzzle. The Fed may do that job by starting to taper in Q4, and don’t think a taper-tantrum is off the menu. USD/CNY is unlikely to spend much time below 6.4000 for the foreseeable, with the risks now skewed to the upside.

Today, Asia FX is firmer against the US dollar, with the Indonesian rupiah up 0.40%, the Thai baht up 0.50%, and the Korean won 0.30% higher. I can see no particular reason for the rally other than the momentum of last week continuing in the absence of any new information to continue the narrative. Tomorrow’s regional PMI data could test that resolve.

Overall, I expect US dollar weakness to continue this week, albeit at a slower pace, until the US employment data on Friday.

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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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