The US dollar holds steady

US dollar recovers on hawkish FOMC minutes

The US dollar spent most of last night under pressure from the omi-gone rally, until the release of the hawkish FOMC minutes. The committee members felt inflation risks were more persistent and to the upside, and there was general agreement that the taper should be accelerated with three tentative rate hikes pencilled in. With US yields rising after that, the US dollar reversed most of its losses intra-day, leaving it only slightly lower and marking the day as a range trade versus DM and EM FX.

The dollar index eased 0.10% overnight to 96.18, where it remains in Asian trading. 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 is steady at 1.1310, USD/JPY at 115.90, and GBP/USD at 1.3530. Euro and yen look most vulnerable to US dollar strength, especially if the yield differential widens. Sterling’s fate remains tied to how its omicron wave plays out.

Risk sentiment indicators, the AUD, NZD, and CAD, eased post-FOMC-minutes. That sell-off has accelerated this morning as Asian stock markets and US index futures headed south.  AUD/USD and NZD/USD have fallen by 0.55%, testing support at 0.7180 and 0.6750 respectively, while USD/CAD tests resistance at 1.2800. If the buy-the-dip rally does not appear on Wall Street this afternoon, the three amigos could easily move another 100 points lower overnight.

Asian currencies are trading sideways today, but several pairs remain close to line-in-the-sand levels with their respective central banks. USD/KRW is at 1199.00 approaching 1200.00. USD/PHP has risen above 51.00 to 51.20, USD/IDR is at 14,400 approaching 14,500.00 and USD/MYR is testing 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.

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