US yields give the dollar a slight boost
The advanced unevenly overnight, as positioning gets rejigged ahead of the FOMC , with short US dollar exposure being trimmed. US and yields rose notably overnight for much the same reason, which supported greenback gains. The dollar index rose just 0.05% to 90.89. although the rally has accelerated in Asia, increasing 0.11% to 90.98.
The rise in the dollar index overnight can mainly be attributed to a fall in the Japanese , with other index heavyweights such as the and almost unchanged. After a dovish yesterday, the rise in US yields overnight had an immediate impact on USD/JPY, highlighting how sensitive the pair is to the interest rate differential.
USD/JPY rose 0.60% to 108.60 overnight, advancing to 108.90 in Asia. USD/JPY has traced out a bottom at 107.50, and a break of 109.00 could see the pair advance to 110.00 once again. Much will depend on the wording of the FOMC .
Elsewhere, has fallen 0.35% to 0.7740 today, unwinding its overnight gains after weak data this morning. AUD/USD has strong support at 0.7700, which includes its 100-day moving average (DMA). It is unlikely to be seriously tested unless the FOMC surprises, and I expect advances by AUD/USD and to resume after the meeting.
Notably, the Malaysian has outperformed this week, boosted by holding around USD65.00 a barrel, and in anticipation of impressive data today. USD/MYR was trading at 6.1000, having traced out a double bottom at 4.0965 overnight. If MYR strengthens through 4.0965 today, USD/MYR could be on track to retrace the rest of its March losses, with USD/MYR targeting 4.0700 in the first instance.
The US dollar has advanced versus both G-10 and regional Asian currencies today despite the PBOC setting a firmer CNY fix at 6.4853. Without sounding like a broken record, I regard the greenback strength as transitory and reflecting a reduction in short-dollar risk exposure ahead of the FOMC. Regular service should resume tomorrow, assuming the meeting passes without drama.