Hopes of fiscal stimulus weighs on US dollar

The US dollar quickly reversed its gains overnight as the US fiscal stimulus news hits the wires. In the end, the dollar index finished barely changed at 92.29. It will be eyeing support at 92.12 and 91.75 into the end of the week. The rapidity of the dollar reversal hints at the potential of the short-dollar trade on any hints that the renewed talks are making progress.

That left the euro and sterling near the upper end of the November ranges at 1.1875 and 1.3265 respectively. With suggestions that a Brexit trade agreement is near, both have the potential to spike higher. The sterling is likely to be the greatest recipient though, and at a minimum should test monthly resistance around 1.3500 if a deal comes to fruition.

The Australian and New Zealand dollars continue to outperform, with the Kiwi, in particular, looking set to test 0.7000 into next week. The Australian dollar continues to defy China’s trade embargos, much to the author’s surprise, reinforcing that events in North America are the underlying driver for currency markets at the moment.

USD/IDR has risen 0.45% to 14,250.00 this morning after the Bank of Indonesia surprised markets with a surprise rate cut yesterday. BI took their chances after strong IDR appreciation this month and will likely regard the fall today as minor collateral damage. We are going to need a lot more US dollar depreciation though for the BI to have more room to cut rates from now on.

The PBOC set a weaker yuan fix today at 6.5786, reflecting dollar strength per the announcement of the fiscal talks from Washington, DC. That has not flowed through to the broader market though, with the yuan and Asian regional currencies mostly edging higher versus the greenback this morning. We expect Asian currencies to remain firm, and for that to accelerate is progress is made on US fiscal negotiations.