The US dollar rally continues

US dollar extends rally

US 10-year and 30-year yields have moved sharply lower in Asia this morning, but that has not dented the US dollar strength that continued on Friday. The dollar index edged 0.04% lower to 90.28 in Asia, having recorded a strong 0.46% rally on Friday. That left the dollar index 2.0% higher for the week. With momentum clearly favouring unwinding the global reflation trade, the dollar index could extend its rally to the 93.00 area in the early part of this week. I do note, though, that the Relative Strength Index (RSI) has hit overbought levels, suggesting that Asia and Europe may trade sideways today.


EUR/USD fell 0.36% to 1.1860 on Friday, where it remains in Asia. It is now well below its 100 and 200-day moving averages (DMAs). It has the potential to test 1.1800 and 1.1700 later in the week. GBP/USD fell 0.86% to 1.3800 on Friday, as greenback strength and nerves over the Covid-19 delta variant combined to weigh more heavily on it. The close well below its 100-DMA was an ominous technical development, and GBP/USD could target support at 1.3675 if 1.3800 comprehensively fails.


The Australian and New Zealand dollars, being barometers of global risk sentiment and significant beneficiaries of the worldwide recovery trade. Both have now comprehensively fallen past their respective 200-DMAs as of the Friday close. AUD/USD has climbed 12 points to 0.7490 this morning but could potentially extend losses to 0.7250 in the coming week. Similarly, NZD/USD is trading at 0.6955 today and could target 0.6800 and 0.6700.


Although the overall picture suggests more US dollar strength versus the majors, most have entered oversold territory versus the greenback in the shorter term. That could see some recovery today by EUR/USD, GBP/USD etc., but that is probably a rally to sell into and not a bottom-fishing opportunity.


USD/JPY has peaked near 111.00, falling back to 109.80 as of this morning. The key driver has been the flattening of the US yield curve, highlighting once again that USD/JPY these days is a yield differential play. With that in mind and watching US bonds rally once again in Asia today, USD/JPY is a sell on rallies to 110.00 and could fall as far as 108.50 this week.


USD/Asia is rallying across the board today, with the KRW, NTD, THB, PHP and IDR all weakening, some by as much as 0.50%. There is an element of catchup involved as most of Asia has restricted liquidity in offshore markets. Thus, the rally in USD/Asia today isn’t necessarily indicative of another bout of US dollar strength, although USD/Asia will likely be a buy on any dip this week.


Notably, offshore yuan, the USD/CNH has risen above its 100-DMA this morning at 6.4690, and a daily close above it would signal more weakness for CNH, with USD/CNH trading at 6.4790 today. The PBOC set a weaker than forecast yuan fixing onshore today at 6.4546 while adding CNY 10 bio in liquidity via the 7-day reverse repo. It seems the PBOC is using this bout of US dollar strength to squeeze out further USD/CNY and USD/CNH shorts, having subtly signalled that yuan strength had gone far enough a couple of weeks ago. That will also keep Asia FX on the back foot, and both USD/CNH and USD/CNY have comprehensively broken out of 3-month downtrends as of last week.

Overall, the overbought technical indicators on the US dollar across the board could see a pause and perhaps a modest retrace of dollar strength in the 24 hours ahead. However, in the grander picture, US dollar strength is set to continue until a lot more global reflation positioning across asset classes is culled.

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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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