US dollar fades on resurgent growth trade

Dollar dips as Omicron concerns ease

The US dollar faded overnight as fading omicron concerns saw hot money flooding back into the global recovery trade. The gains were mostly seen in the EM space, however, where even the Turkish lira managed to rally last night. In the major currency space, the US dollar held steady, likely due to the US yield curve modestly steepening overnight.

EUR/USD, GBP/USD and USD/JPY are holding steady at 1.1290,1.3255 and 113.50 in Asia, barely changed for the last 24 hours. The lack of strength versus the US dollar, even as the greenback fell elsewhere, suggests that all EUR, GBP and JPY remain highly correlated to the Fed taper-trade and that the balance of risks is still tilted towards the downside for all three.

AUD/USD, NZD/USD both rallied overnight as global investor sentiment sharply rebounded.  AUD/USD has risen to 0.7130 and NZD/USD has risen to 0.6790. The 0.7000 and 0.6700 areas remain key support zones for both and although the sun is shining Downunder today, both are highly vulnerable to a swing in sentiment once again, or the reality of tighter US monetary policy next week. The rallies could extend into the end of the week but should be approached with a high degree of caution.

The same can be said about the strength in Asian currencies being seen overnight and today versus the US dollar. The swing in sentiment back to the global recovery has seen decent strength across the board in the Asia FX space, but once again, is subject to the whims of investor sentiment. It is clear that a lot of fast money rushed into the space overnight, but if anything, Asian currencies, even without China nerves, are more vulnerable than most to the reality of potentially tighter US monetary policy.

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