Currency markets wait for cue from CPI
With a comparatively light news flow overnight, currency markets are also in wait-and-see mode ahead of US inflation this evening. The US dollar continues to trade to the lower side of its recent ranges, despite the dollar index rising slightly by 0.13% to 92.22 overnight in directionless trading. Momentum still favours a softer US dollar for now, with US bond yields capped. Only a massive upside surprise by US Core CPI this evening is likely to change that narrative. The dollar index’s key pivot level remains 91.50, with rallies capped above 92.60.
EUR/USD, GBP/USD and USD/JPY spent the overnight session treading water ahead of inflation data today. In Asia, they are barely changed at 1.1870, 1.3900 and 110.40, respectively. The recovery in risk sentiment has seen AUD/USD and NZD/USD recover in recent sessions. AUD/USD sits midrange between 0.7400 and 0.7600, with a break of either side signalling its next directional move. NZD/USD received a short-term boost from FPI data this morning, but its rally has petered out above 0.7000. Ahead of the RBNZ policy meeting, gains are likely to be limited. A break of either 0.6900 or 0.7100 will signal its next directional move.
The super-strong China trade data today has seen the yuan push higher versus the US dollar. USD/CNY has fallen 0.20% to 6.4645, and the fall by the yuan after the PBOC RRR surprise last week has run its course for now. USD/CNY looks set to range between 6.4500 and 6.4900 until we get a directional move by the US dollar in the DM space.
The picture is not so bright across the rest of Asia as Covid-19 concerns continue to weigh on regional investor sentiment. For that reason, I expect the US dollar weakness to be more fully expressed in the major currency space instead of the Asian FX space this week. The Malaysian ringgit, Thai baht, Indonesian rupiah, Philippine peso and to a lesser extent, the Singapore dollar all remain near recent lows versus the greenback. Until virus progress shows concrete gains, I expect regional Asian currency underperformance to continue.