U.S. Dollar Declined Monday. how Did Other Currencies Fare?

The U.S. dollar tumbled down from more than nine-month highs against other major currencies on Monday. Asian stocks rallied, boosting sentiment on the markets even though the Delta coronavirus variant continues spreading rapidly.

During today’s session, the dollar index plummeted down by 0.19% to 93.311 against six rivals. Before that, it had skyrocketed as high as 93.734 on Friday, reaching this point for the first time since November 4, 2020.

The currency rallied after equities had rebounded across the region. Base metals prices also soared as hopes of an improvement in demand increased. The world’s top metals consumer – China, reported that it hadn’t had any new locally transmitted coronavirus cases for the first time since July. Wall Street’s stronger finish on Friday encouraged sentiment, as well.

On Monday, commodity-linked currencies, such as the Australian and Canadian dollars, led the rebound against the greenback, following sharp declines last week. Today, the Aussie surged forward by 0.29% to $0.71575 after dropping to a nine 1/2-month low of $0.71065 on Friday.

Against the Canadian dollar, the U.S. currency lowered by 0.25%, trading at C$1.2776 at last. Before that, it had jumped to an eight-month high, exchanging hands at C$1.2949 at the end of last week.

What Caused the U.S. Dollar’s Previous Rally?

The greenback has soared this month thanks to its safe-haven status. Traders feared that a surge in the fast-spreading Delta variant would derail a global economic recovery. In addition, the Federal Reserve is still signaling a tapering of stimulus as soon as this year.

The agency moved its annual Jackson Hole, Wyoming symposium to an online format due to Coronavirus considerations. The Fed will hold it this Friday. Its officials plan to raise questions about the central bank’s broader assessment of the Delta Covid variant’s economic impact.

Thus far, Fed Chair Jerome Powell has mostly played down the repercussions. However, he will also give a speech on the economic outlook at the event. Investors are eager for details of the timing and pace of monetary policy tightening.

Osamu Takashima, the head of G10 FX strategy at Citigroup Global Markets Japan, noted that the Fed might sound somewhat hawkish at the Jackson Hole symposium this week. In that case, the firmness in the greenback could continue. The analyst anticipates a tapering announcement next month. He added that commodity currencies are rebounding a bit currently, but this bounce won’t be so large.

Meanwhile, National Australia Bank (NAB) stated that even if the Fed comes out more dovish, delaying a taper would not necessarily push the currency back.

Ray Attrill, NAB’s head of currency strategy, thinks that this situation can as easily play out USD positive as negative from a risk sentiment/safe-haven dollar demand perspective.

What About the Asian Currencies?

Covid-19 infections and new restrictions in Australia and New Zealand are weighing on the Aussie and the Kiwi. Attrill noted that it remains premature to call an end to the down move in the Australian dollar.

Meanwhile, New Zealand’s Kiwi remained flat at $0.68385 on Monday, trading close to the nine 1/2-month low of $0.6807 reached on Friday. The nation is under lockdown, struggling to contain a Delta outbreak. Almost 60% of Australia’s population of 25 million is also under lockdown, while infections hit a record rate.

Furthermore, Japan shifted strategy and tripled coronavirus tests as daily new infections jumped to a record on Friday. Vietnam and South Korea have extended and tightened restrictions.

The Japanese yen, which is another safe-haven currency, exchanged hands mostly unchanged at 109.85 per dollar. It consolidated in the center of the trading range of the past month and a half.

How Did the Euro Fare Against the U.S. Dollar?

On Monday, the Euro seemed ready for a rebound against the greenback after reaching 1.1663, its lowest level since November 2020.

So far, the technical indicators cannot guarantee any sustainable recovery in the market despite the bullish appetite for the price. The RSI has bottomed twice in the region of its 30 oversold mark. Still, it continues to fluctuate within the bearish area. In addition, the Stochastics haven’t officially abandoned the oversold region yet. At the same time, the MACD remains below its red signal line, and the Ichimoku indicators show a bearish intersection.

The 20-day simple moving average or SMA and the tentative descending trendline drawn from the 1.2265 high – both stand near 1.1774 currently. They will remain a major challenge for the bulls in the short term.

If the price drifts southwards and breaks the 1.1663 low, 1.1600 will become the next crucial support area. Failure to hold above this level could trigger a more aggressive sell-off towards the 1.1500 – 1.1455 zone for the EUR/USD pair.

Overall, bearish risks persist in the pair despite the latest attempts for a rebound. Traders expect the Euro to strengthen if the price closes clearly below 1.1663. However, if an upside reversal happens, they will turn to the 1.1780 – 1.1800 area.