Equity rally weighs on US dollar

Although the US dollar rallied overnight, the dollar index rising 0.10% to 94.13, those gains have been quickly erased in Asia as equity markets have jumped higher. The dollar index has retreated to 93.88, and notably, has failed at its 100-day morning average (DMA) at 94.22. With Manufacturing PMIs outperforming across the world yesterday, Asia appears to be looking past the election and assuming the world’s recovery remains on track despite the near-term event risk. To a certain extent, I can’t argue with that premise, just the timing.

Although USD/CNY remains unchanged at 6.6900 this morning, Asian regional currencies are broadly stronger, boosted by global recovery sentiment. The Thai baht and Indonesian rupiah are notable gainers, rising to 31.070 and 14,600 respectively, with the Indian rupee also climbing 0.15% to 74.382. The fact that Asia’s three most-unloved currencies are the day’s outperformers hints further of global recovery demand waiting to pounce after the US election has passed.

Aussie climbs after RBA rate cut

The Australian dollar has reacted with sharp gains after the RBA went ahead with an expected rate cut. The central bank trimmed the Cash Rate from 0.25% to 0.10%, which was the first time the bank has made a rate move since March. As well, the bank made a historic move by implementing a quantitative easing program, by announcing it would purchase A$100 billion worth of government bonds over the next six months. AUD/USD is up 0.78% in the European session.

The dollar-bloc commodity currencies all rose overnight, CAD, AUD and NZD all gaining recovery tailwinds. The EUR and GBP though, remain anchored near the bottom of their recent ranges, weighed down by Covid-19 lockdowns. On EUR/USD, 1.1600 remains the critical support zone, with a failure suggesting much deeper losses ahead.

Although pro-cyclical Asian and G-10 currencies have outperformed in the last 24 hours as global PMIs boosted recovery hopes, further gains will be harder to extract from here. With so much event risk ahead in the next 24 hours, and possibly later, I expect haven currencies to regain ascendency, if only temporarily.

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