US dollar dips lower against majors, yuan gain ground

The US dollar eased ever so slightly overnight, despite US yields firming. The US dollar index fell 0.20% to 93.23, smack in the middle of its one-month range. The same can also be said for the EUR/USD, the leader of the great dollar sell-off these past two months. It has finished at 1.1810 overnight. The single currency needs to break above 1.1920 to signal the next leg of the US dollar sell-off has begun. Conversely, a fall through 1.1700 is an equally powerful signal that a deeper US dollar correction is upon markets.

The most vulnerable of the major currencies at this stage appears to be the New Zealand dollar. The return of community-based Covid-19 and an uber-dovish RBNZ this week has knocked the kiwi off its perch. Having traced multiple daily tops out ahead of 0.6700 resistance, the NZD/USD has fallen to 0.6530 today in Asia. A close below 0.6500 this evening heralds a much deeper sell-off into next week.

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If the major currencies ascent versus the US dollar has stalled and broken down into range trading, the same cannot be said for regional Asia currencies. Except for the Indonesian rupiah, which continues to struggle versus the greenback, most of Asia continues to see consistent strengthening. The USD/CNY has fallen to 6.9470 this morning after another firm PBOC fix. As well, the SGD, MYR, THB and PHP are all trading near their recent highs against the US dollar.

Regional Asia continues to be boosted by investor sentiment regarding the global recovery trade; however, many of them are now entering overbought territory on the relative strength indexes. Although lagging the move into consolidation and possible corrective territory by the major currencies, they will not be immune to negative movements in that space forever, should they occur. Investors should monitor the EUR/USD, particularly if it falls through 1.1700, for a signal that the party has stopped temporarily for regional Asian currencies.

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