Dollar moves higher on Fed taper talk

The US dollar maintains its Fed tapering boost

The US dollar shrugged of a confused US employment data picture on Friday as markets put omicron to one side and priced in that a faster Fed taper from the FOMC remains on track to be announced next week. Markets have also priced in faster rate hikes as well, supporting the US dollar even as the US yield curve flattens. The dollar index held steady at 96.15 on Friday, rising 12 points to 96.27 in Asia.

The rise in the dollar index has been driven by a reversal out of the haven Japanese yen and Swiss franc today as omicron worries subside for now. USD/JPY and USD/CHF have risen 0.16% and 0.28% to 113.00 and 0.9205 respectively. If the initial reports from South Africa turn out to be correct globally, markets have seen the lows in both pairs for some time.

Those currencies most associated with risk sentiment are finding very little respite though, namely the commonwealths and Euro. Instead of omicron, sentiment concerns have been replaced with a faster Fed taper and more rapid US interest rate hikes. EUR/USD and GBP/USD have edged lower to 1.1290 and 1.3235 today and remain a sell on any 50 to 100 point rally. AUD/USD has risen 0.30% to 0.7020 on firm ANZ jobs data, but NZD/USD remains stuck around 0.6760. Both remain vulnerable to deeper sell-offs this week and in the case of AUD/USD, it has formed a very negative head-and-shoulders technical pattern targeting a multi-week move to near 0.6000.

The PBOC set a weaker Yuan fixing today but USD/CNY has still eased 0.10% to 6.3685. Other Asian currencies are also enjoying a modest omicron respite, with MYR, KRW, PHP, SGD, and THB between 0.15% and 0.25% higher this morning. The longevity of the rally is entirely dependent on omicron headlines, as it is elsewhere. But being more sensitive as a region to US monetary policy, I believe gains will be limited at best by Asian currencies this week as Fed taper nerves ratchet higher. A higher than expected US CPI on Friday likely sees another wave of selling sweeping Asian FX as well as the euro and commonwealths.

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