Currency markets consolidated overnight, but the US dollar has resumed its climb in Asia, the dollar index rising 0.20% to 93.12 this morning. Covid-19 nerves ahead of Macron’s address today are weighing on the EUR/USD, which has fallen 0.20% to 1.1777. EUR/USD has fallen through support at 1.1800, and if France goes into national lockdown tomorrow, we expect EUR/USD to test 1.1700. It may also be enough to sway the ECB’s hand tomorrow and increase the pace of bond purchases, another negative.
Japanese yen rally continues
Repatriation and haven buying continue to boost the Japanese yen, which has fallen to 104.25 today, 75 points lower than the highs of yesterday. Monthly support looms at 104.00 and targets further losses to 103.00 if it gives way. We expect the yen to outperform into next week’s elections.
The offshore and onshore yuans have converged at 6.7110 today after the PBOC tweaked the yuan fixing mechanism. US dollar strength into the election should see the yuan ease over the coming days. However, with such a massive yield advantage and sparkling economic data, we would expect the yuan’s advance to resume once the US elections are past. The Korean won is a similar story and has retreated slightly today to 1130.70. The respite is likely to be short-lived with the Bank of Korea likely to intervene again on dips to 1125.00.
Across Asia, regional currencies have given ground versus the US dollar today as well, as investors reduce risk into next week. Like the yuan and won, we expect regional Asia to continue outperforming once the elections have concluded. A possible double-dip in Europe will be a story for later in November for Asia.
As the “blue wave” meets electoral uncertainty and pre-election nerves, we expect the US dollar to outperform as risk is reduced into next week. Looking ahead though, no matter who wins the presidency or the Senate, the US dollar is likely headed into an extended period of weakness in 2021.