Investors give US dollar thumbs-up

The US dollar rallied again overnight, notably outperforming pro-cyclical currencies as investors appear to move aggressively into US dollar cash and selling down position in every other asset class. The dollar index broke through monthly resistance at 94.00 overnight, rising 0.40% to 94.34. The strong risk-off nature of the US dollar rally overnight implies further gains for the dollar index, with an initial target of 94.65.

Although the euro and British pound retreated only slightly overnight, the sell-off in pro-cyclical “risk” currencies was much more pronounced. Both the Australian and New Zealand dollars fell by over 1.0% overnight and have resumed losses this morning. The AUD/USD has fallen to 0.7057 this morning and has critical support at 0.7000, its 100-DMA. A loss is implying further drops to 0.6800. The NZD/USD has fallen to 0.6540 today, with its two-month low and its 100-DMA nearby at 0.6500. A loss of this level should see the Kiwi test its triple bottom at 0.6380, which is also its 200-DMA.

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An almost unchanged USD/CNY fix at 6.8028 by the PBOC has spread Asian regional currencies blushes today. The CNY, THB, SGD and PHP are all unchanged, defying US strength thanks to the PBOC. The PBOC looks set to keep USD/CNY in a 7.7500/6.8500 range in the near-term, despite the turmoil elsewhere. That will offer a measure of support to regional Asian currencies.

There are exceptions, of course. USD/MYR has risen again today, climbing 0.30% to 4.1640 as an opposition leader said yesterday that he has enough support in Parliament to topple the present government. Politics have always been Malaysia’s Achilles heel, and the MYR looks set for further losses, possibly as far as 4.2000, until the political situation in Kuala Lumpur clarifies. An oxymoron is ever I have said one.

Indonesia’s Finance Minister said yesterday that the country wouldn’t escape a recession. As one of the most vulnerable currencies in the region, and with high beta to global economic confidence, USD/IDR has risen to 14,900.00 this morning. That has prompted Bank Indonesia to directly intervene in forex markets, selling the US dollar versus the rupiah.

Bank Indonesia’s line in the sand has for some time appeared to be 15,000, and it has not hesitated to intervene each time USD/IDR has threatened this level. Maintaining the rupiah’s strength is a key pillar for investor confidence in Indonesia, something that the central bank and Ministry of Finance are both acutely aware of. If the global rush to US dollar cash continues, Indonesia faces a much sterner test of its resolve then at any time since March.



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