Transitory Fed Weakens US Dollar
With Jerome Powell firmly camped still in the transitory inflation corner, US bond yields unwound their previous day’s rise, and that saw the US dollar give back part of its previous session’s gains. The fell 0.44% to 92.37 overnight, leaving it mid-range between support at 92.00 and resistance at 92.85, which it once again tested and failed at intra-session overnight.
Currency markets continue to show more caution on the inflation equation than either stocks or bonds, and this has been the case for the past couple of weeks. In the meantime, a break of the aforementioned support/resistance levels is now required to signal the US dollar’s next directional move.
A dovish Powell lifted off its 1.1770 lows overnight, rallying to 1.1850, where it remained in moribund trade in Asia. With inflation data remaining soggy in Europe, the single currency needs to recapture the 1.1900 regions to signal a greater recovery. Otherwise, a break of 1.1770 could still signal a deeper correction to between 1.1500/1.1600.
A Bank of England official suggested that UK rate hikes could be getting closer overnight, which saw sterling climb 0.35% to 1.3860. That rally has faded in Asia, with falling to 1.3840. GBP/USD cleared support at 1.3800 and resistance at 1.3900.
fell 0.30% to 0.7460 in Asia, despite very impressive data. COVID-19 worries are clearly perceived as a more immediate threat to AUD/USD today, and resistance at 0.7500 looked safe for now. Large options expiries at that level today, though, mean that AUD/USD is unlikely to track much lower intra-session.
selling may also be weighing on the Australian dollar after a hawkish pushed the higher yesterday. NZD/USD held gains above 0.7000 overnight, and if inflation data released tomorrow morning is higher than expected, the tightening noise will increase. That should see the kiwi continue to rally versus the US and Australian dollars.
Asian currencies recorded modest gains overnight in a collective sigh of relief after Jerome Powell kept the Fed in the dovish corner. fell to 74.476 and to 1141.10, helped along by firm India data and a slightly Bank of Korea. However, the retracements were shallow, and in the case of , and , they are almost non-existent.
The latter three remain the most vulnerable to further weakness along with the as all four continue to grapple with challenging COVID-19 situations. The fall in prices overnight will have done the IDR and MYR no favors, and you can throw in political uncertainty into the as well. With content to range between 6.4500 and 6.5000, it was regional Asia that remained the most vulnerable to further losses for now.