The US dollar falls overnight once again

US dollar dips despite rising uncertainty in markets

If anyone needed evidence that markets are chasing their tails at the moment, it would be currency markets. The US dollar fell once again overnight even as oil prices surged, and uncertainty increased on a number of fronts. Even more odd was that US yields actually edged higher overnight, a rare divergence these days. The US dollar index fell 0.30% to 93.80.


Normal service appears to be resuming though in Asia, with the dollar index surging 0.20% higher to 93.98. A weaker US dollar is inconsistent with heightened event fears in the markets, a Fed taper, or still surging energy prices, almost all of which are priced and transacted in US dollars. Asia seems to agree, and it is notable that energy-price-taking Asian currencies are mostly lower today.


Overnight EUR/USD failed ahead of resistance at 1.1650 and has sunk back to 1.1600 in Asian time. A noisy 1.1550 to 1.1650 range beckons until Friday. Similarly, GBP/USD failed ahead of critical resistance at 1.3610, retreating to 1.3595 in Asia. GBP/USD looks the more vulnerable of the two. With US yields only slightly higher overnight, USD/JPY did nothing, edging up 10 points to 111.10 today.


Rising fear sentiment in Asia has pushed AUD/USD and NZD/USD lower, unwinding some of their overnight gains. The RBA, as I write, has left rates unchanged with no notable deviations from the previous statement. AUD/USD has fallen 0.20% to 0.7270 and has failed numerous times to recapture 0.7325 over the past few days. NZD/USD is 0.40% lower today to 0.6940. With Covid-19 cases outside Auckland edging higher, and the government abandoning its Covid zero strategy, the kiwi remains vulnerable. If the RBNZ doesn’t come to the party tomorrow and hike, or if global risk sentiment worsens, NZD/USD could well retest 0.6850 and 0.6800 this week.


In contrast to US dollar weakness versus the major currencies, Asian currencies have spent overnight and today on the back foot. The deteriorating risk atmosphere in the US and surging oil prices were never likely to be Asia FX’s friend and notably, USD/INR rose 0.60% overnight, climbing 0.10% to 74.585 today. With a high exposure to energy prices across the board and thus a need to buy more dollars as they rise, the USD/INR remains on course for a retest of 75.000, especially if the RBI holds policy unchanged on Friday.


Elsewhere, USD/PHP continues to find mysterious resistance each time it nears 51.00 and I suspect the BSP is selling dollars up there. High domestic inflation, an economy in recession, a rising US dollar and energy prices will be no friend to the peso eventually. Offshore USD/CNH is also rising as is USD/KRW. Only the energy-associated MYR and IDR are showing some resilience, holding at 4.1800 and 14,250.00 for now. You get the feeling it is only a matter of time before both resume their sell-offs. As price-takers, Asia FX is vulnerable to energy price inflation and that’s the nub of it.


It is hard to reconcile a weaker US dollar with the goings-on in the world, and I expect that reality to reassert itself this week. A stronger US Non-Farm Payrolls will lock and load the Fed taper and be another tailwind for US dollar strength. The rest of the week, however, is likely to be characterised by no small amount of intra-day volatility as the street chases its tail on daily sentiment swings ahead of the Friday data.

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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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