US Dollar Drifting

Currency markets content to range trade

Currency markets showed little reaction to the Fauci omicron comments overnight, having already put the new variant behind it to focus on the upcoming FOMC meeting next week. That sentiment saw the US Dollar drift higher in a benign session, the dollar index rising 0.15% to 96.30 before falling slightly to 96.24 in Asia as currency markets continue to drift.

The Fed taper once again pushed USD/JPY higher as the US yield curve steepened once again overnight, USD/JPY rising 0.60% to 113.50, before adding another 0.20% to 113.70 in Asia. If we have indeed seen “peak omicron,” the 112.50 lows seen last week could well be the lows for the cross for the foreseeable future.

EUR/USD, GBP/USD are marking time around 1.1290 and 1.3285 with both vulnerable to a resumption of their medium-term downtrends next week if the BOE and ECB remain on hold while the FOMC speeds up tapering. AUD/USD rallied 0.40% today to 0.7080 after the RBA remained on hold but left the door slightly cracked for a faster unwinding of loose policy in the future. NZD/USD is treading water at 0.6760 with some yen cross buying supporting both. Further gains are likely to be harder to come by if the US dollar remains firm.

The US dollar has weakened across the board versus Asian currencies thanks to the rebound in investor sentiment on weaker omicron fears. USD/Asia is down approximately 0.15% today in a quiet session. Looking ahead, as the market swings back to pricing in a fast Fed-taper and earlier rate hike life off, the rally by Asian currencies is likely to stall and reverse into next week.