US yields give the dollar a slight boost
The US dollar advanced unevenly overnight, as positioning gets rejigged ahead of the FOMC meeting, with short US dollar exposure being trimmed. US 10-year and 30-year yields rose notably overnight for much the same reason, which supported greenback gains. The dollar index rose just 0.05% to 90.89. although the rally has accelerated in Asia, increasing 0.11% to 90.98.
The rise in the dollar index overnight can mainly be attributed to a fall in the Japanese yen, with other index heavyweights such as the euro and sterling almost unchanged. After a dovish BoJ yesterday, the rise in US yields overnight had an immediate impact on USD/JPY, highlighting how sensitive the pair is to the interest rate differential. USD/JPY rose 0.60% to 108.60 overnight, advancing to 108.90 in Asia. USD/JPY has traced out a bottom at 107.50, and a break of 109.00 could see the pair advance to 110.00 once again. Much will depend on the wording of the FOMC statement.
Elsewhere, AUD/USD has fallen 0.35% to 0.7740 today, unwinding its overnight gains after weak inflation data this morning. AUD/USD has strong support at 0.7700, which includes its 100-day moving average (DMA). It is unlikely to be seriously tested unless the FOMC surprises, and I expect advances by AUD/USD and NZD/USD to resume after the meeting.
Notably, the Malaysian ringgit has outperformed this week, boosted by Brent crude holding around USD65.00 a barrel, and in anticipation of impressive export data today. USD/MYR is trading at 6.1000 this morning, having traced out a double bottom at 4.0965 overnight. If MYR strengthens through 4.0965 today, USD/MYR could be on track to retrace the rest of its March losses, with USD/MYR targeting 4.0700 in the first instance.
The US dollar has advanced versus both G-10 and regional Asian currencies this morning despite the PBOC setting a firmer CNY fix at 6.4853. Without sounding like a broken record, I regard the greenback strength as transitory and reflecting a reduction in short-dollar risk exposure ahead of the FOMC. Regular service should resume tomorrow, assuming the meeting passes without drama.
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Jeffrey Halley
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.
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