US dollar eases post-FOMC

FOMC tapers by USD 15 billion

With the FOMC taper announcement overnight of a USD 15 billion taper being followed by a masterclass in fence-sitting, some profit-taking pushed the US dollar slightly lower, with the short-term market having clearly gone into the FOMC long. The dollar index fell by 0.26% to 93.85 but has risen 0.12% to 93.96 in Asia. Given Asia’s higher sensitivity to Federal Reserve policy, the small rally is not surprising. The dollar index has support at 93.80 and it looks set to trade in a narrow 93.75 to 94.15 range ahead of tomorrow’s Non-Farm Payrolls, despite higher US yields post-meeting overnight.

EUR/USD has risen slightly to 1.1600 today and 1.1580 to 1.1630 will likely cover its range in the next 24 hours. If the BOE hikes in the UK today, GBP could make gains vis EUR/GBP selling. Key support is at 1.1520, failure of which signals more losses to 1.1400. Resistance remains at 1.1700. Sterling rose by 0.50% overnight, trading at 1.3665 in Asia. Markets seem to be experiencing a last-minute swing bank to a BOE hike this afternoon after exiting the trade over the past few sessions.  Positioning looks more balanced now meaning we should expect a decent directional move whatever the BOE decision. A dovish Bank of England can still see sterling retest the 1.3400 region, but equally, a rate hike and a hawkish outlook could see it jump to 1.3700 and 1.3750.

USD/JPY is locked in a narrow range each side of 114.00, rising with US yields to 114.20 as of this morning. It remains a slave to the US/Japan rate differential and looks to set to continue ranging into the Non-Farm Payrolls. USD/JPY has support at 113.40 while a rise through 114.70 signals more gains above 115.00.

AUD/USD and NZD/USD rebounded overnight as bullish sentiment in New York post the FOMC mean a return to business as usual for the Australasians. AUD/USD is 0.35% higher at 0.7455 as of this morning and still looks vulnerable to a retest of 0.7400 thanks to the dovish fence-sitting of the RBA, and a fall in Australian yields yesterday post the RBA decisions. Resistance remains solid at 0.7550.  With an RBNZ in hiking mode, NZD/USD caught the best of overnight jump in sentiment in the US, having been dragged lower by the AUD yesterday. Kiwi has risen 0.65% to 0.7160, the middle of its 0.7100 to 0.7260 range. It has an upside bias now, especially against the AUD and JPY.

The PBOC set a slightly weaker yuan setting today at the USD/CNY fixing but offset that with a liquidity withdrawal in local markets. Having rallied into the FOMC overnight, USD/Asia is slightly lower today, wary of the firming of US yields across the curve seen overnight. KRW, THB, MYR, and TWD are around 0.20% lower this morning. Having negotiated the FOMC without incident, Asian currencies will continue marking time into tomorrow night’s US non-Farm Payrolls. A blowout number to the topside and a consequent rise in US yields could see another wave of selling in Asian FX next week.

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