Is more US dollar weakness coming?
Currency markets completely ignored the tremors in equities overnight, as the US dollar continued to give ground against major and Asian currencies. The US dollar index fell 0.18% to 94.78, easing another 0.14% to 94.65 earlier. The dollar index is testing support at its mid-March lows at these levels, and a weekly close here implies that more dollar weakness lies ahead next week. Forex markets and US/China rhetoric herd-immunity appears to be getting stronger by the day, as they accept the conflict as the new norm.
With US yields easing again overnight, and the US Congress making little progress on the next fiscal stimulus package, with the present one expiring today, the US dollar’s allure as a safe haven appears to be fading. Having signed off its pandemic recovery package this week, the euro seems to have grasped that mantel. EUR/USD rose again overnight, climbing 0.25% to 1.1595. It is 0.18% higher still today, at 1.1615. A weekly close above 1.1600 will be a bullish technical development, targeting an advance on 1.1800 in the coming week.
The Australian dollar has also regained its mojo, rising through 0.7100 overnight and remaining steady at 0.7110 today. A weekly close at these levels implies a retest of 0.7200 by the Lucky Country dollar next week.
The Chinese yuan, though, continues to be buffeted by US/China geopolitics. Both the onshore and offshore yuans weakened overnight. Unsurprisingly, the more easily traded offshore USD/CNH bore the brunt of political nerves, rising from 7.0000 overnight to 7.0200 this morning. Onshore USD/CNY, by contrast, has only increased to 7.0150, helped by at stronger PBOC fix at 6.9921. Both yuans remain vulnerable to further losses as the temperature of relations between the US and China continues to rise.
Asian currencies are quiet today, consolidating recent gains, with activity muted by the Japan holiday. We expect the US dollar to continue weakening into the week’s end, with the euro continuing to be the primary beneficiary.