Forex Today – Asian Session: USD Rules, DXY Hits April 2020 Highs and Breaks Above 100.50 Level

Here’s what you need to know on Tuesday, April 19:

Major European markets were closed on Monday, making for fairly subdued trading conditions for most of the day, although flows picked up a bit during US trading. Nonetheless, the US dollar traded strongly across the board. against its main G10 counterparts and the dollar index (DXY) reached its highest level since April 2020 at 100.80.

Traders cited expectations of an increasingly aggressive Fed tightening cycle, as also reflected in rising US yields across the curve, as a boost to the dollar on Monday. In addition to second-tier data in the form of various housing market reports and the Philadelphia Fed manufacturing index release for April, the main information on Fed tightening stories/US economic outlook will come when Fed Chairman Jerome Powell speaks Thursday at the IMF/World Bank meetings.

It is expected to cement expectations that the Fed will raise interest rates by 50 bps at the next meeting and probably in a few more meetings thereafter, as well as begin a balance sheet sell-off soon. Analysts believe this may mean even more upside potential for US yields and the US dollar going forward.

The Fed’s position as one of the most aggressive G10 central banks was not the only factor supporting the dollar on Monday. Market commentators also mentioned gloom over the Russo-Ukrainian war, with peace talks seemingly at an impasse (according to Ukrainian President Zelenskyy’s comments over the weekend) and Russia starting its offensive in the east.

This week’s IMF and World Bank meetings will be used as a platform by NATO and Western nations to push for tougher sanctions against Russia, underscoring the stagflation risks that the conflict and the associated sanctions response pose for Russia. the worldwide economy.

Elsewhere in the currency markets, the worst performer of the major G10 currencies was the Australian dollar, with AUD/USD falling 0.6% to one-month lows below 0.7350, perhaps amid further turmoil/ pessimism about the lockdown situation in China. Better-than-expected Chinese GDP growth figures for the first quarter of 2022 did little to ease concerns about the Chinese economy’s outlook for the second quarter.

The yen also fared poorly amid rising US yields, with USD/JPY hitting its highest levels since 2002 near 127.00. The recent doubts about the negative impact of the yen’s weakness in Japan have not reinforced the expectations of some type of intervention in the foreign exchange market to reverse the recent weakness of the yen.

Indeed, analysts suspect that as long as the BoJ continues with its flagship policies of negative interest rates and yield curve control, the yen is likely to remain under selling pressure. BoJ Governor Haruhiko Kuroda reiterated on Monday that it is still too early to discuss departing from these policies.

The Canadian dollar was the second best performer in the G10, helped by higher oil prices and with Canada’s Consumer Price Inflation data later this week in the spotlight. USD/CAD remained subdued just above 1.2600 and below its 200 and 50-day moving averages.

EUR/USD fell around 0.25% to get back below 1.0800 and is once again targeting last week’s lows around 1.0750. GBP/USD fell by around 0.4% to just above 1.3000 and is also targeting yearly lows, which in this case are just below the 1.3000 level. NZD/USD fell around 0.3%, dipping below a key support level in the form of the March low at 0.6728, thus reaching its lowest point since late February. All three pairs weighed in as a result of the dollar’s strength.

In the immediate upcoming Asia Pacific session, the only notable economic event is the release of the minutes from the last RBA meeting, where the bank removed its reference to being “patient” regarding rate hikes. Therefore, traders will be looking for more clues as to the potential timing of interest rate hikes and whether the market’s bets on a June takeoff are too aggressive.