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US dollar bounces back

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US dollar climbs on CPI, risk aversion

The US dollar rebounded sharply after 40-year highs in inflation data and as risk sentiment soured once again over Easter Europe and the news tickers remained quiet on OPEC+ increases. US long-dated yields resumed their climb, despite a well-bid 30-year auction overnight, providing more support to the greenback. Risk-hedging should keep the US dollar well supported into the end of the week.

The dollar index rose by 0.53% to 98.53, where it remains in Asia, nicely parked in the middle of its broader 97.50 to 99.50 range. The Euro fell sharply overnight after US inflation stoked fears of more Fed hikes, inconclusive talks in Turkey, and a faster-tapering ECB stoked recession fear. EUR/USD fell 0.80% to 1.0990 where it remains in Asia. 1.0800 and 1.1400 remain the critical longer-term support/resistance levels. GBP/USD fell 0.80% to 1.3088 and it is sitting close to support at 1.3075. A retest of 1.3000 into the weekend cannot be ruled out.

AUD and NZD booked 0.50% gains overnight, but weekend risk hedging leaves both 0.25% lower in Asia at 0.7340 and 0.6850.  Both currencies will continue to be buffeted by sentiment on one side and moves by commodity prices on the other. That suggests more choppy, but sideways, price action ahead. Having booked strong gains over the past weeks as commodities rallied, the antipodeans remain more vulnerable to risk-aversion flows now.

The Korean won, Philippines peso, and New Taiwanese dollar led weakness in the Asian currency space overnight, with USD/CNH climbing back to resistance at 6.3300. Surprisingly, the Indian rupee has managed to cling onto its last two days’ gains, trading at 76.3360, well below the week’s high at 77.18. I am dubious about how long this will last, but it may be benefitting from fast-money flows into the equity market, the Sensex being one of the few markets to rise this week. Regional currencies will trade soft into the weekend as traders reduce risk and remain highly sensitive to negative developments in commodity markets.

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