US dollar rises on higher yields

US dollar shows gains against G7 currencies

The US dollar rebounded overnight on higher US yields, which coincided nicely with a short market, the greenback having been sold for all of the past week on “rotational” plays. Again, the price action looks corrective rather than a structural change in trend. The dollar index rose by 20 points to 90.50, smack in the middle of its recent days’ trading range.

EUR/USD fell slightly to 1.2105, edging lower again to 1.2090 this morning. GBP/USD has also declined to 1.3895 today. Both, however, remained comfortably above support, notably Sterling. USD/JPY was the big G7 mover, climbing 0.63% to 106.05 before retreating to 105.85 this morning. The rise in USD/JPY highlights its sensitivity to US/Japan rate differentials. USD/JPY is comfortably above its falling wedge and the 200-DMA, both at 105.55. Assuming US yields stay where they are, USD/JPY should target 107.00 in the coming sessions.

The commodity-centric Australian and New Zealand dollars both fell overnight, having been primary recipients of the global recovery rotations, along with the Canadian dollar, last week. Despite this, USD/CAD remains well below resistance at 1.2760, at 1.2700 today. Similarly, AUD/USD is trading at 0.7750, well clear of support at 0.7690. NZD/USD has fallen to 0.7200 this morning and is threatening to fall back through its symmetrical triangle at this level. It could potentially target 0.7100 initially, with the return of community Covid-19 cases in Auckland finally weighing on the Kiwi. An increase in New Zealand cases could herald the start of a deeper correction for the flightless bird.

With China on holiday until tomorrow, Asian currencies have given ground modestly overnight and this morning, although the price action looks corrective again. USD/IDR has climbed back above 14,000.00, and if US yields rise again this week, a weaker IDR could take a Friday rate cut by Bank Indonesia off the table. For the rest of the currency universe, tonight’s US data, and its effect on US yields will determine how far the US dollar correction will run.

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