The US dollar powered higher overnight as US bonds sold off aggressively. Once again, the catalyst for the dollar’s gains were the upward movement in US Treasury bonds. The US 10-year rose to 1.72%, trading at 1.75% intra-day. The 30-year rose to 2.47% as the US curve continued to steepen. The dollar index rose 0.46% to 91.86, near the top of its weekly range. The dollar index now threatens 92.00, with a weekly close above signalling further gains to 92.60 next week. However, the US dollar is moving solely on the back of directional moves in US yields at the moment, and it is that market that will determine its direction.
Major currencies were in full retreat overnight except the Japanese yen. EUR/USD fell to support at 1.1900, with the single currencies outlook clouded by a darkening Covid-19 landscape once again. A fall through 1.1800 next week signals that a substantial downward correction has started.
As ever, the US dollar strength manifested itself most notably in the APAC dollar currencies. Both the AUD and NZD fell sharply by 0.65% and 1.05%, respectively. Notably, both rallied to their breakout levels this week, but failed ahead of them, a bearish technical development. AUD/USD has support at 0.7700, and NZD/USD at 0.7150. A weekly close below those levels signals more losses next week. Both continue to be an Asian proxy to higher US yields and the inflation fears, with most of the rest of Asia running dirty pegs to the greenback.
On that note, Asian currencies retreated overnight and have edged lower today. The scale of the fallout has been limited as USD/CNY remains ensconced around the 6.5000 level. The ever-present threat of intervention limits volatility in the spot market, even as the US bond sell-off continues. The Indonesian rupiah and Indian rupee remain Asia’s most vulnerable currencies, but a move higher by USD/CNY through 6.5500 next week may shake investor resolve across the rest of the regional market.