A mixed US dollar performance

US dollar gets lift from rising US bond yields

The US dollar had a mixed night, rising versus the major currencies and the Asian currency grouping, as firm US bond yields sparked yield differential nerves. Conversely, the same post-omicron sentiment propelling stock markets and bond yields higher had a positive effect on the usual sentiment barometers. Sterling and the Canadian, Australian and New Zealand dollars all having a good night.

The dollar index rose 0.06% overnight, only to give it all back in Asia, where it is trading net-unchanged for the last 24 hours at 96.24. A break of 95.50 or 96.50 will signal the index’s next directional move, although if US yields stay firm, the greenback looks set to continue to outperform in the major currency space. EUR/USD remained steady at 1.1295, as did USD/JPY at 116.00, while positive comments from the UK Prime Minister that Britain could weather the omicron storm without shutting down lifted GBP/USD to 1.3530, where it remains in Asia. A close above 1.3560 potentially signals a rally to 1.3800.

Although the AUD, NZD and CAD retraced some of their losses overnight, they are almost unchanged at 0.7235, 0.6805 and 1.2715, leaving all three roughly mid-range for the week. 0.7180 and 0.7280, 0.6750 and 0.6850, and 1.2600 and 1.2800 are the breakout levels to watch for. Sentiment swings continue to rule the direction of the three amigos.

In Asia, the rise in US yields seems to be spooking some Asian currencies, with the US dollar rally pushing a number of pairs towards line-in-the-sand levels with their respective central banks. USD/KRW is at 1198.00 approaching 1200.00. USD/PHP has risen up through 51.00 to 51.10, USD/IDR is at 14,350 approaching 14,500.00 and USD/MYR looks set to test 4.2000. The yuan, baht and Indian rupee continue to outperform. For the rest, it will be interesting to see if their respective central banks step out of the shadows and start offering US dollars again. In a rising US interest rate environment, this will be a quandary they will be asked numerous times in 2022. If the Asian central banks stay side-lined, USD/Asia could be about to move sharply higher, assuming US yields hold their gains.

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