US dollar remains elevated

Risk apprehension boosts US dollar

The US dollar has risen sharply in Asian trading as the weekend sanction escalation sparked haven flows into the greenback. The dollar index is 0.70% higher this morning. EUR/USD has fallen by 0.90% today to 1.1170, and although technical are slightly meaningless in these sorts of markets, we would need to see 1.1100 fail to signal a greater sell-off.

The Japanese yen has also seen haven inflows, with USD/JPY unchanged at 115.50 today, capping US dollar gains. However, GBP/USD has fallen by 0.40% to 1.3360, and sentiment indicators AUD/USD and NZD/USD have suffered. AUD/USD has fallen 0.70% to 0.7180, while NZD/USD has tumbled by 0.85% to 0.6685.

USD/CNY and USD/CNH remain unchanged at 3.3150, with the PBOC intent of limiting volatility and some haven flows into the yuan’s capping US dollar gains. Regional Asian currencies are on the back foot, driven by nerves of energy prices and supplies, and a move to safety by fast money flows. USD/KRW, USD/THB and USD/INR are all around 0.75% higher today and the energy importing nature of Asia means they will remain vulnerable to higher oil and gas prices. Ukraine is also a major exporter of grain to the region, and fears of food price inflation will also persist.

The Russian rouble, thanks to the weekend SWIFT restrictions, is understandably thin in trading today. Most non-Russian banks will be reluctant to settle the other side of any rouble trade, and I have no doubt compliance officers are having a busy morning. The rouble was trading domestically near 150 over the weekend as Russians caused a bank run in the rush to change savings into hard currencies. It has allegedly traded at 117.00 on wholesale markets today, and I believe that the Europeans coming on board with SWIFT and freezing the Russian central bank reserves means worse losses are to come for the currency. That appears to be spilling over into other adjacent markets with USD/TRY rising by 1.80% in Asia.

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