US dollar rebounds

The US dollar recoups Friday’s losses

The dollar index fell 0.20% to 92.78 on Friday in a directionless session. No weekend breakthroughs on US stimulus proposals have seen the dollar index recoup those losses in early Asia today. The US dollar is stronger across the board, notably against the AUD, EUR and JPY, where it has climbed by over 0.20%.

The greenback has also edged higher versus regional currencies, with USD/CNH climbing 0.15% to 6.6770, with the onshore USD/CNY steady at 6.6860. USD/MYR has edged 0.15% higher to 4.1610 as Malaysian politics adds another gloomy shadow to the currency.

Overall, though, activity is muted, especially with Hong Kong away today. In the bigger picture, currency markets remain in range-trading mode despite the US dollar gains this morning. In the case of Asian currencies, most have booked decent gains over the past few weeks, even the Indonesian rupiah, and appear to be consolidating those advances.

Although I expect regional Asian currencies to outperform into the year-end, and for the US dollar to fall materially in 2021, further gains may be harder to come by this week. US election noise will increase as the week moves on. If the polls shift to an inconclusive result, particularly in the US Senate race, we are likely to see further risk reduction by investors into Monday. That should benefit the US dollar and possibly the Japanese yen as the week progresses.

With a light data calendar in Asia, investors will be keeping an eye on events in Europe and the United States. The highlights of these sessions are likely to be German IFO this afternoon, followed by US New Home Sales this evening. With the Hong Kong banks closed on Monday for a holiday, activity will likely remain light in Asia as financial markets continue to be wary of headline induced spikes in volatility from Washington DC.

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