The US dollar gets a beating

Blue wave hammers US dollar

The US dollar was crushed overnight beneath the stampeding feet of the blue wave herd, stampeding back into the buy everything trade. Whether one believes the market has gone too far too soon is irrelevant, one must respect the momentum. Should the US elections today pass without incident, relatively, it is entirely reasonable to expect that the US dollar will fall once again. We should theoretically have a clearer picture by midday Singapore time.

The dollar index collapsed overnight, falling 0.61% to 93.55, having failed ahead of its 100-day moving average (DMA) at 94.20, for the fourth day running. The pro-cyclical were the big winners of the day. AUD/USD rose 1.50% to 0.7165, NZD/USD rose 1.0% to 0.6695, and USD/CAD fell 0.70% to 1.3165. Elsewhere though, the other major currencies also enjoyed strong performances, notably sterling which rose 1.0%.

Regional Asian currencies also outperformed overnight, although not to the same extent as the commodity bloc. Perhaps the strangest move was the massive rally by the AUD/USD, despite the Australian export ban by China story being out all night. If indeed this is the path China has chosen to take, I would be very hesitant about becoming too bullish on the AUD at these levels, whether Biden wins or not.

A Biden win should theoretically be positive for the Mexican peso and the Canadian dollar, and potentially damaging for sterling over the Brexit Irish question. Asian countries sitting astride the trade lanes of both China and the US also stand poised to outperform if the polls turn out to be correct, and Biden wins. That should lead to outperformance by the Korean won, the New Taiwan dollar, the Singapore dollar and possibly the Japanese yen.

Like equity markets, the morning will be a choppy one for currency markets, moving to the tune played by the incoming voting results. Discretion is the better part of valour in markets like this morning will be.

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