The US dollar rises versus Asia

Rising US yields boost US dollar

The US dollar held steady versus most majors overnight, with reduced haven flows on Ukrainian hopes offset by rising US yields. The dollar index finished 0.04% lower at 99.09, before easing another 0.25% to 98.835 in Asia. However, versus Asian currencies, the US dollar continued to grind higher and with the USD/Japan rate differential widening overnight, USD/JPY has exploded higher to 118.30. With the BOJ as dovish as ever, and concerns mounting over Japan’s rising import bill, USD/JPY should target 120.00 if this week’s FOMC is as hawkish as expected.

Most of the majors are rallying today in Asia as oil has fallen 4.0%, giving renewed momentum to the peak Ukraine trade. EUR/USD has rallied by 0.40% to 1.0983, and GBP/USD has risen 0.35% to 1.3050. EUR/USD remains uncomfortably close to multi-year support at 1.0800, and its bearish out won’t change unless it rises through 1.1200 and 1.1400. AUD/USD and NZD/USD are holding steady at 0.7190 and 0.6750 respectively, as reduced Ukraine nerves give a temporary reprieve from the buffeting of sentiment flows.

USD/CNY has risen sharply to 6.3735 this morning after yet another markedly stronger USD/CNY fix. Beijing seems to be signalling that the yuan rally is over as it circles back to its old playbook of a weaker currency to support growth. That will be another headwind to Asian currencies which mostly run dirty pegs to the US dollar in some form or manner like China. With the FOMC due to hike this week, rates are going nowhere in Asia and it faces rising import bills from the commodity rally, Asian currencies are set to endure prolonged weakness. It is notable that the fall in oil prices these past few sessions has produced no meaningful rally in regional currencies.

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