US Nonfarm Payrolls looms

Currency markets traded sideways overnight, content to mark time ahead of the US employment data this evening. The flurry of anti-China activity from the White House this morning has seen the US dollar rally as investors quickly unwind short dollar positions from this week.

Asia has been dominated by concerns over US politics today. The stimulus clock is going Tik Tok towards the Republican and Democrat Friday deadline to reach an agreement over the follow-on stimulus package. A failure to reach an agreement is potentially another strong negative to the one-way price action across asset classes this week.

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With the haven play front and centre, the dollar index has risen by 0.40% to 93.12 this morning. The US dollar has flexed some muscles against the majors as well as the emerging market currencies. The euro and Australian dollar are both 0.50% lower, with the sterling and New Zealand dollar also fading. Across regional Asia, the Thai baht, Singapore dollar, Malaysian ringgit are all 0.30% lower versus the greenback.

Most of the fireworks have been reserved for the offshore Chinese yuan though, given the anti-China rhetoric from the White House today. The USD/CNH has risen 0.50%, or nearly 300 points, in a straight line to 6.9730. The onshore yuan is approaching similar levels. Both are still well within the allowable trading bands for the rest of the day. Further losses seem likely for the offshore yuan as the day goes on.

Overall, short US dollar positioning, which has increased this week, faces some severe risks over the remainder of the day. Geopolitics is an obvious risk, but a weak Non-Farm Payrolls this evening could administer a coup de grace to a heavily short market. The longer-term bearish case for a lower US dollar remains intact, but investors could well be in for some potentially gut-wrenching short-term pain in the meantime.

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