Currency markets had another choppy session on Friday, but ultimately, remained content to continue range trading. The US dollar rallied somewhat, despite US yields falling. I suspect that pre-weekend caution was the driver of moves in both asset classes. The dollar index rose 0.22% to 98.22, edging higher to 98.26 in Asia. A Japanese holiday today is muting volumes and volatility in the region.
EUR/USD gave back some of its gains above 1.1100, falling 0.36% to 1.1050, where it remains in Asia. A European oil embargo on Russia would be another headwind for the single currency, although a Ukraine agreement or progress will likely spark a sharp relief rally. Levels to watch for now are 1.1000 and 1.1200. Sterling edged higher to 1.3175 before falling to 1.3160 this morning. It looks to have traced out a major low at 1.3000 and its medium-term technical outlook is now constructive above that level. 1.3200 is initial resistance. USD/JPY rose sharply on Friday by 0.46% to 119.15 as oil prices continued to rally. Today’s rises will keep the pressure on the yen which seems to be tracking oil more closely than US yields for now. It remains on track to test 120.00.
AUD/USD and NZD/USD booked gains on Friday, rising 0.50% and 0.40% respectively to 0.7415 and 0.6905. The antipodeans continue to ride the rebound in risk sentiment in US markets and until that changes, the technical picture suggests more gains lie ahead. The next technical resistances are at 0.7440 and 0.6925.
Asian currencies are steady after the PBOC left its Loan Prime Rates unchanged and set a neutral USD/CNY fixing. The rise in oil prices this morning had seen Asian currencies retreat modestly and imported inflation, particularly energy, remain their Achilles heel. Regional central banks have little to no interest in tightening monetary policy in response to the Fed, concentrating on maintaining growth. With commodity prices to remain elevated even if the Ukraine war ended tomorrow, any material gains by Asian currencies are likely to be temporary in H1 2022. If China is indeed weakening the yuan in response to a slowing economy, that will be another headwind for regional currencies.
