US dollar retreats due to “risk-on” rally

US dollar dips as Trump returns home

The US dollar retreated overnight, as investors piled into pro-cyclical assets and out of defensive assets as the US president returned to the White House, supported by US ISM data and fiscal stimulus hopes. The US dollar index fell 0.38% to 93.40, with G-10 currencies carving out modest gains in overnight trading. That has left major currencies such as the euro, sterling, Australian and New Zealand dollars still ranging, but at the upper end of those ranges.

The US dollar weakness was more pronounced amongst pro-cyclical Asian currencies. The USD/CNH has fallen to 7.7300 and could well target support at 6.6700 if the positive sentiment continues in financial markets. The onshore yuan market is closed until Friday. The Singapore dollar, Thai baht and Philippine peso all recorded substantial gains, with only the Malaysian ringgit lagging. It is stuck mid-range as political and palm-oil woes continue to dog the country.

The passing of the new Indonesian labour law that loosens labour markets and foreign investment restrictions saw the Indonesian rupiah gap higher to 14,600 today. It has since given back some of those gains, with USD/IDR rising back to 14,700. Indonesian markets are awaiting the release of the exact wording of the legislation, and likely, a new bout of IDR strength will follow. Indonesia’s economic challenges remain a myriad of bad news and confusion; however, the passing of this admittedly unpopular law domestically should see the IDR continue to strengthen. A fall by USD/IDR through 14,600 opens further IDR gains in the days ahead.

Like equities, Asian currency traders are quiet today, wary of event risk from Washington DC. Both major and local currencies being almost unchanged in directionless trading this morning. That is likely to continue until Europe arrives later today.