Dollar loses steam on Powell dovishness

US dollar rally stopped in its tracks

The US dollar was catching a higher yield tailwind overnight, with the dollar index rising to 90.26 intra-day. That quickly reversed as Mr Powell released the doves, and the dollar index finished just 0.18% higher at 90.16. Asia has continued selling US dollar, with the index falling to 90.07 this morning, leaving it once again hovering above support at 90.00. A daily close below that level likely signals more dollar weakness targeting 89.30 initially.

The neutral day for the dollar index left developed markets basically unchanged from the previous day. The Australian and New Zealand dollars have outperformed this morning, rising by 0.25% to 0.7925 and 0.7360, respectively. The Reserve Bank of New Zealand held rates at record lows of 0.25% this morning. The RBNZ reiterated that monetary policy support would be required for a prolonged period. The central bank also said added that it could again trim rates if things take a turn for the worse.

Overall, currency markets seem to be chasing their tail in narrow ranges awaiting the next directional move. That state of affairs may well continue into the end of the week with the balance of probabilities suggesting that dollar weakness is the path of least resistance. A spike in 10 and 30-year yields again would probably be what sets that off.

USD/JPY continues to confound, having traded as high as 106.20 on Monday, before falling as low as 104.92 overnight, before settling at 105.45 this morning. The USD/JPY gyrations around the 200-day moving average (DMA) and multi-month trendline, both at these levels, has left a confusing technical picture now. A 105.00 to 106.00 range looks to be USD/JPY’s fate until we see another move in US bonds.

Asian currencies remain moribund, orbiting the Chinese yuan’s event horizon as the PBOC’s daily fixing was at an uneventful 6.4615, barely changed from yesterday. Until the yuan stages a directional move one way or the other, regional currencies are likely to remain in a holding pattern.

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