US dollar dips as rate hike talk subsides

As the last hold-out of the FOMC taper-trade, it looks as if the US Dollar is finally capitulating to the lower-for-longer theme as well, the dollar index retreating 0.17% to 94.05 overnight. With central bankers talking down rate hikes across the globe, Risk Sentiment has risen, leading to a momentum stall for the greenback’s rally. The 94.50 region has now established itself as a formidable zone of resistance, and it will take a substantial momentum shift to erode it. Attention now turns to the downside, where the failure of 93.80 should see the index retest 93.50.

A weaker US dollar granted the euro and sterling a reprieve overnight, with both being weighed down by dovish central bankers and Brexit/Northern Ireland nerves. EUR/USD has edged higher to 1.1585 but needs to break above 1.1625 to signal an upside breakout. GBP/USD jumped 0.50% to 1.3560, although the technical picture suggests it won’t be out of the woods until it can reclaim 1.3700. The Japanese yen was the big winner, USD/JPY falling from 113.50 overnight to 112.95 this morning. A washout of stale long positioning could see the cross trade as low as 112.00 in the coming days, although if US yields rise meaningfully, the sell-off will be stopped in its tracks.

AUD/USD and NZD/USD rose overnight led by the kiwi, boosted by new Auckland reopening measures being announced. The technical picture suggests that 0.7200 could be retested this week and the prospects of steeper yield curves and positive global risk sentiment should continue to support both currencies.

The recovery of global risk sentiment is also playing out well for Regional Asian Currencies. The Korean won, Philippine peso, Indonesian rupiah and Thai baht have all booked decent gains in Asia this morning as rate-hike fears in the US fade further into the background. Unless US Inflation data tomorrow springs a massive upside surprise, regional Asian currencies should continue to rally through the rest of the week. China also set a strong yuan fix today at 6.3903, which will further support regional currencies.