The US dollar maintains its gains

US yields, oil supporting dollar

Although long-dated US yields have eased slightly this week, short-dated ones continue rising. This flattening of the yield curve, along with high energy prices, appears to be continuing to support the US dollar versus the G-7 currencies. The dollar index maintained its gains overnight, finishing 0.15% higher at 93.96.

EUR/USD held steady at 1.1600, as did GBP/USD at 1.3770, while USD/JPY rose 0.40% to 114.15 before exporter selling saw it fall back to 114.00 in Asia this morning. A dovish ECB tomorrow likely sees the EUR/USD sell-off recommence targeting 1.1500 initially. GBP/USD will be at the mercy of the UK budget this afternoon while USD/JPY is befitting from the flattening of the US yield curve. A hawkish FOMC next week could see it rise to 116.00.

Elsewhere, the commodity currencies continue to maintain gains thanks to positive risk sentiment from the US earnings season and firm resource prices. Momentum appears to be stalling in USD/CAD and NZD/USD though with a rise through 1.2410 in USD/CAD potentially triggering a short squeeze. Likewise, a fall by NZD/USD through 0.7130 will signal a temporary end to the kiwi rally. AUD/USD remains constructive thanks to rising inflation and RBA expectations, with a rise through 0.7550 signalling more gains potentially reaching 0.7700.

Asian currencies remain near the higher end of their recent ranges, thanks to a neutral PBOC and a rise in investor sentiment over the past week. Once again though, momentum seems to be stalling. It looks like the Asian currency space is now moving to wait-and-see mode ahead of next week’s FOMC.

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