The US dollar sharply reversed most of its earnings at the end of the month on Friday as ISM manufacturing data disappointed. I suspect that much of the dollar rally on Friday was driven by a rebalancing at the end of the month, rather than a fundamental change in forecasts. Therefore, it should come as no surprise that the state of the US dollar changed quickly at the first hint of trouble.
The dollar index was down 0.35% to 90.97, just below its 100-day moving average (DMA) of 91.04. The 100-DMA has been trading at the approximate midpoint of the past two weeks in the 90.50 to 91.50 range. This leads me to believe that the markets are still deciding where the US dollar will go, despite the volatile trading range of the past two weeks. Thus, a breakout of 90.50 or 91.50 would indicate the next directional movement in the dollar.
As expected, the euro, pound sterling, Australian and New Zealand dollars rose overnight as Asian currencies showed mixed performance.
RBA remains peaceful
The Reserve Bank of Australia, as expected, left the interest rate at 0.10%. The central bank raised its economic forecasts, saying it expects unemployment to fall to 5.0% by the end of 2021, up from the current 5.6%. At the same time, the RBA said it would consider extending its $ 200 billion QE program until 2022 and does not expect a rate hike until 2024. RBA Governor Philip Lowe admitted that the economic recovery is progressing faster than expected. Nevertheless, the bank made it clear that it still adheres to the “dovish” position. The reaction to the RBA meeting was restrained, as the Australian dollar is hardly moving.
The Thai baht has dropped and the dollar / baht has risen to 27,934 today as Covid-19 problems persist. USD / INR also edged higher to 74.20, although it recovered most of its intraday losses. USD / INR climbed to 74,270 in Asia, and with early hopes that the number of Covid-19 cases is slowing, we may have seen the best of the rupee recovery so far.
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