Asian currencies buoyed by stocks

Asian currencies are staging a very modest rally versus the US dollar today, boosted by a robust regional equity performance, and a quiet geopolitical front. The US dollar is around 0.10% to 0.20% lower versus the CNY, THB, SGD, MYR and IDR today. The rally, though, appears a minor range-trading one, rather than the start of a new leg lower for the US dollar.

In Asia, Singapore GDP and Macau gambling have dominated the morning news financial headlines. Singapore is struggling, as the country’s GDP shrunk by over 40% in Q2, with construction spending plunging 97%. The data itself was as expected, and given that most construction workers have been in Covid-19 lockdown, a surprise to no one.

The AUD and NZD have outperformed, rising 0.30% to 0.7175 and 0.6610 respectively. That, though, is still far distant from their strong resistance zones at 0.7240 and 0.6700. Both appear to be treading water, with the NZD particularly vulnerable if community transmission of Covid-19 has returned.

USD/JPY is quietly eroding resistance at 106.20, tracing out a series of higher daily lows since Thursday. A break higher reopens a test of 107.00 and then its 100-DMA at 107.30. USD/JPY generally moves inversely to the greater US dollar moves these days, on haven and hedging flows.

Investors should look to the euro for hints about the next material move for the US dollar, given that the single currency has led the dollar sell-off this year. EUR/USD failed multiple times at 1.1900, failing to even test its multi-year down-channel line at 1.1940, which dates to 2008. A failure of 1.1700 could see EUR/USD drop to 1.1600 and even as far as 1.1500, with open futures interest suggesting a very crowded trade. A further collapse in the Turkish lira could be the catalyst and bears close monitoring.