The US Dollar rose overnight once again, propelled higher by rising US yields, hawkish Fed-speak and perhaps some Delta-variant risk-hedging flows. The dollar index rose by 0.20% to 92.97 overnight, with a resistance test at 93.20 seemingly inevitable. That will open further gains to 93.50 and then 94.30. Only a fall through 92.60 changes the narrative.
The Australian Dollar fell through the bottom of its rising wedge overnight, reflecting rising risk sentiment from the virus and higher US interest rates. The fall through 0.7360 saw AUD/USD at 0.7320 this morning with an initial target of 0.7250, and if the US CPI outperforms tomorrow, it could fall to 0.7000 in the week ahead.
USD/JPY rose to 110.35 overnight, where it remained in Asia. A rally through 110.60 signals further gains to 111.60 initially. As a purely US/Japan yield differential play these days, the US CPI tomorrow night will be critical in signaling its next directional move. Both the euro and especially the Swiss Franc look vulnerable to further losses for the same reasons. EUR/USD could test support at 1.1700. USD/CHF gained 1.50% over the last two sessions to 0.9200. A high US CPI print should see the pair test 0.9270.
The US Dollar rally resumed in earnest versus Asian currencies yesterday, China aside. My fragile four of India, Indonesia, Malaysia, and Thailand could well be joined by the Philippines in the coming days, with the Peso retreating heavily over the last couple of days.
Tapering by the US Federal Reserve starting in Q4 will be a game-changer, as none of these countries is in any position to even think about tightening monetary policy in response. The relief valve will inevitably be weaker currencies unless they choose to burn through their admittedly impressive foreign currency reserves.
Delta lingers in the background of all of them limiting gains anyway, but a firm US CPI print tomorrow night sets up Asian FX for another bout of weakness.