The US dollar sharply reversed much of Friday’s month-end gains as ISM Manufacturing data disappointed. I suspect that much of the greenback’s rally on Friday was built on month-end rebalancing and not a fundamental swing in outlook. As such, it was of no surprise that the US dollar’s fortunes quickly reversed at the first hint of trouble.


The dollar index retreated by 0.35% to 90.97, just below its 100-day moving average (DMA) at 91.04. The 100-DMA markets the rough mid-point of the past fortnights range between 90.50 and 91.50. that leads me to believe that markets are still deciding where the US dollar is going, despite the choppy range trading of the past two weeks. A break of either 90.50 or 91.50 will therefore indicate the greenback’s next directional move.


As expected, the euro, sterling and Australian and New Zealand dollars all rallied overnight, as Asian currencies put mixed performance.


RBA remains dovish

The Reserve Bank of Australia held rates at 0.10%, as was widely expected. The central bank raised its economic forecasts, saying it projected unemployment to drop to 5.0% at the end of 2021, down from the current level of 5.6%. At the same time, the RBA said it would consider extending its USD200 billion QE program into 2022 and did not anticipate raising rates before 2024. RBA Governor Philip Lowe acknowledged that the economic recovery has been faster than expected. Still, the bank signalled that it remains committed to a dovish stance. The reaction to the RBA meeting was muted, as the Australian dollar is showing little movement.


The Thai Baht retreated, USD/THB rising to 27.934 today as Covid-19 woes persist. USD/INR also reversed course, rising to 74.20, although it recovered much of its intraday losses. USD/INR has climbed to 74.270 in Asia, and with early hopes dashed that Covid-19 cases are slowing, we may have seen the best of the rupee recovery for now.