Currency markets continue sitting on their hands
Currency markets appear to be on strike at the moment, with tight ranges amongst the major currencies, and seemingly determined to wait for clearer signals later in the week. The US dollar has held much of its post-FOMC gains still, suggesting that forex markets are more nervous of another move higher in US yields than equity markets.
On Friday, the dollar index finished unchanged at 91.81, having probed the downside before a move back above 1.50% by the US 10-year yield saw it regain its poise. Yields have firmed again slightly in Asia which has seen the dollar index edge 0.05% higher to 91.85 in moribund trading. That has left the majors almost unchanged from Friday. EUR/USD is trading at 1.1925, GBP/USD at 1.3890 and USD//JPY at 110.65. Even AUD/USD and NZD/USD are showing no virus nerves, holding steady at 0.7585 and 0.7070, respectively.
The PBOC set a neutral USD/CNY fix today but added liquidity via the repo market. That has seen USD/CNY rise 0.10% to 6.4620 this morning, although it is hard to see 6.4500 giving way until the data prints later this week.
The Thai baht, Malaysian ringgit and Indonesian rupiah remain under pressure though and will likely do so throughout the week. The deteriorating Covid-19 situations in each currency is weighing on sentiment. USD/MYR is trading at 4.1500 today and could retest 4.1650 this week. USD/THB is at 31.892, not far from last week’s highs around 32.000. Meanwhile, the virus situation in Indonesia is arguably the most potentially problematic of all, and USD/IDR is testing resistance near 14,500.00 today. A move towards 14,600.00 will almost certainly provoke a response from Bank Indonesia.
I expect currency markets to remain steady for the first part of the week as we await the torrent of data in the second half. Regional Asian currencies look most vulnerable, either by a spike higher in US yields or the threat to growth due to their respective virus situations.