US dollar retreat continues

The US dollar sell-off accelerates overnight

The US dollar sell-off accelerated overnight with both the major and commodity currencies tracing substantial gains versus the greenback. What appears to have woken the currency market from its slumber on the year’s penultimate session is the UK’s approval of Astra Zeneca’s Covid-19 vaccine. As described above, it is potentially a game-changer for many parts of the world where approvals will surely follow quickly. That gave a boost to the global recovery trade, which should see a continued global rotation out of defensive US dollar positioning and into recovery orientated markets.

The dollar index fell 0.35% to 89.68 overnight, breaking support at 89.75. It has eased a further 0.03% to 89.65 in Asia, albeit with forex volumes muted in the region. A weekly close below 89.75 tonight suggests further losses to its 2018 low at 88.25 in January. Potential risks to this outlook are outlined above, notably the Georgia senate runoff on Tuesday.

Elsewhere, EUR/USD rose 0.35% to 1.2285, an 18-month higher. Vaccine hopes propelled GBP/USD one per cent higher to 1.3620. The technical picture suggests further gains to 1.2400 and 1.3800 in the coming week. Australasian currencies continue to be the forex markets’ favourite recovery plays, with AUD/USD rising 1.0% to 0.7685, NZD/USD capping a stellar week by rising 0.70% to 0.7205 overnight. Both have advanced by 0.20% this morning with the AUD/USD breaking major resistance at 0.7630 overnight.

In Asia, regional currencies have traced modestly higher, with volumes impacted by the early closure of markets, either officially or unofficially. The Chinese yuan, Thai baht and Singapore dollar are all 0.05% higher. The Malaysian ringgit is today’s outperformer, USD/MYR falling 0.60% to 4.0105 today. The ringgit is now 1.10% higher for the week, supported no doubt by firmer oil prices this week. As a primary beneficiary to the global recovery next year, I expect the ringgit to strengthen further to 3.8500 in Q1, as long as oil prices remain firm.

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