US yields, dollar retreat despite strong NFP
The US dollar slipped once again on Friday after the recovery in US Non-Farm Payrolls data, as US yields retreated slightly in a somewhat surprising reaction. With markets twisting any data inputs to a recovery narrative linked to the FOMC’s no rate hikes post-taper mantra, the dollar index slipped slightly, falling 0.12% to 94.22. That said, currency markets appear to be distancing themselves from the ever-bullish equity space in this respect, with the greenback holding onto almost all its recent gains, remaining near two-month highs. With Nasdaq and S&P futures slipping in Asia, the dollar index has unwound Friday’s losses, rising 0.10% to 94.30 in Asia. 93.80 remains the index’s key pivot point and support, while it has well-defined resistance just above 94.50. A close above 94.60 will signal the next leg of the US dollar’s rally.
EUR/USD has slipped to 1.1560 this morning, with GBP/USD easing 0.15% to 1.3475, although both remain not far from Friday’s close. Threats by the UK to enact Brexit protocols over Northern Island are sharply escalating tensions and weighing on both currencies. 1.1500 and 1.3400 are the levels to watch with Brexit tensions likely to play more heavily with sterling. The Japanese yen was the primary winner from the Non-Farm data as the slide in US yields saw USD/JPY fall 0.30$ to 113.40 before rising to 115.60 in Asia. The cross remains at the mercy of the US/Japan rate differential with support holding at 113.40, while a rise through 114.70 signals more gains above 115.00.
AUD/USD and NZD/USD remain almost unchanged over the past two sessions, at 0.7400 and 0.7126, respectively. An easing of Auckland restrictions was announced today, lifting NZD/USD slightly. Interestingly, the wave of bullish sentiment in North America has failed to lift either currency and suggests that both remain vulnerable to further slides if that sentiment dips.
Asian currencies hardly moved on Friday after the US data, as China continues to hold the yuan firm to help offset higher energy prices. The record balance of payments data from China has had no reaction on forex markets today. Regional currencies remain locked in range trading with two notable exceptions, the Thai baht and Indonesian rupiah. The THB continued to receive an international travel reopening boost. Meanwhile, the IDR has rallied sharply today, USD/IDR falling 0.80% to 14,555.00 this morning. Higher oil prices will have helped, but I wonder if the Bank of Indonesia has intervened ahead of 14,400.00 as IDR has been trading to the weak side over the past week. Asian currencies remain in a cautiously watchful mood, perhaps nervous that US markets will have a delayed reaction to the recent run of data and the start of the Fed taper, sending US yields higher.
