Dollar Firms in Quiet Holiday Trading, As Yen Stays Soft

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In today’s session, the New Zealand Dollar continues to be the worst-performing currency, with the Yen trailing far behind, the currency markets are really quiet. Because the United States is on vacation, trading will most likely remain low. The greenback is still the strongest currency for the week, owing to expectations that “transitory” but persistently high inflation will push the Fed to hike interest rates sooner rather than later. As the price of WTI oil stabilized above the 75 handles, the Canadian dollar is currently the second strongest for the week. 

In the minutes of the FOMC meeting on November 2-3, various participants noted that the committee should be ready to “adjust the pace of asset purchases and raise the target range for the federal funds rate earlier than the participants currently expected” if inflation continues to rise above levels consistent with the objectives of the Committee.”

At the same time, due to the continuing significant uncertainty over supply chain development, production logistics, and the spread of the virus, several participants emphasized that “patient acceptance of the incoming data remains acceptable, allowing for a thorough assessment of evolving supply development chains and their implications for the labor market and inflation”.

“In doing so, participants noted that the Committee will not hesitate to take appropriate measures to address inflationary pressures that have jeopardized its long-term price stability and employment targets.”

US Dollar Rallying Once More

After a more hawkish tone in the FOMC minutes and higher-than-expected PCE statistics, the US dollar rose once again overnight. Currency markets may have seen some pre-holiday risk-hedging purchasing, with the US dollar now being the market’s preferred way to play the inflation/Fed-taper trade, especially with the euro languishing under a virus cloud. As US stock index futures continue to advance, the dollar index surged 0.35 percent to 96.86 but has now dropped back to 96.75.

The US dollar remains vulnerable to a downside correction, with the dollar index’s relative strength index (RSI) being in extremely overbought territory for the rest of the week. Nonetheless, the index remains a buy-on-dips candidate, with a chance of breaking through 97.00 this week.