Dollar eases after the FOMC stays dovish

FOMC, China’s soothing words send dollar lower

It looks like a few FOMC taper-hedging positions were taken off last night as the US dollar broadly eased in the overnight session versus DM and EM. The soothing words from China about targeted versus broader clampdowns also helped relieve the pressure on Asian currencies, including the onshore and offshore yuans.


The dollar index fell by 0.22% to 92.22 overnight, easing another 0.10% in Asia to 92.18. Resistance is now distant at the 92.60 break-out point, and the dollar index looks set to retest support at 92.00 later today, which could open up a retest of critical support at 91.50 next week.


EUR/USD rose 0.22% to 11840 overnight, touching 1.1855 in Asia this morning. Only a lowball German inflation print will derail an attempt at 1.1900, with the single currency having traced out impressive support at 1.1750. GBP/USD is testing its 100-day moving average at 1.3924 this morning and continues to target further gains to its medium-term pivot level at 1.4000, with only a failure of 1.3800 now changing the bullish narrative.


The recovery in risk sentiment after the China bankers meeting and a suitably dovish FOMC has seen both the Australian and New Zealand dollars rally overnight and this morning. AUD/USD is creeping towards resistance at 0.7400, which will open up further gains to 0.7500, while NZD/USD, at 0.6965, continues to target resistance at 0.7000.


USD/CNH fell 0.65% overnight to 6.4860, with the onshore USD/CNY retreating 0.30% to 6.4900 before falling to 6.4750 this morning. The China clampdown assurances previously mentioned have driven the rallies and today’s retreat by USD/CNY leaves it comfortably nestled in the middle of its previous 6.4500 to 6.4900 range. With risk nerves easing, USD/CNY is likely to remain around these levels until the end of the week. From now on, much will depend on just what the China definition of “targeted” turns out to mean and whether US bond yields finished the week on a soft note once again.


That has taken the pressure of regional Asian currencies, which also rallied on the China news and a steady as she goes FOMC outcome overnight. Notably, the Indian Rupee is outperforming, USD/INR falling to 74.224 this morning. Data suggesting that Indian oil imports continue to slump due to the Covid-19 demand crush may be assisting the INR rally, as oil importers have to buy less US Dollars. In the bigger picture, most of Asia remains gripped in a delta-variant funk, and its impact on the regional recovery is why ASEAN currencies are under pressure. Nothing has materially changed on that front, and I expect any rallies today and tomorrow to quickly run out of steam next week and the downtrend to resume.

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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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