Aussie, Kiwi, Loonie and Yen all rejoice as US Dollar succumbs to profit taking

Here’s what you need to know on Thursday, April 21:

The U.S. dollar succumbed to profit taking on Wednesday as U.S. yields tightened from multi-year highs, adding some investment appeal to the dollar. The U.S. dollar index (DXY) slipped 0.6% to the low of 100.00 after hitting its highest levels since March 2020 above 101.00 on Tuesday, weighed mainly by the decline in the USD/JPY as the yen enjoyed a lagging respite.

USD/JPY fell just over 0.8% on the day to return below the 128.00 level, more than 1.2% below multi-decade intraday highs at 129.40 hit earlier in the session. But at current levels near 127.75, the pair is still trading over 1.0% higher on the week and over 5.0% higher on the month, with little sign of a more significant rally. of the yen, the less the BoJ signals some sort of change in policy direction.

Non-US dollars were notable outperformers on Wednesday. AUD/USD jumped around 1.0% to near 0.7450, NZD/USD gained around 1.0% to recover 0.6800 and test its 50-day moving average at 0.6813 and USD/CAD fell to a two-week low below 1.2500.

The hawkish tone of the RBA minutes released earlier in the week along with the spicy Canadian Consumer Price Inflation (CPI) numbers released on Wednesday likely helped push the Aussie and the loonie higher. Meanwhile, kiwifruit traders are preparing for the release of Q1 2022 CPI figures in the upcoming Asia-Pacific session.

Somewhere else, the euro and the pound sterling also gained ground against the US dollar, with decent Eurozone industrial production numbers and hawkish chatter from the ECB about a possible July hike that could help the euro. But in truth, the main driver of EUR/USD’s 0.6% rally towards the 1.0850 area and GBP/USD’s 0.5% rebound above 1.3050 is came from the dollar side of the equation.

FX strategists noted that while further profit-taking on the US dollar was certainly possible, with the Fed now on autopilot to bring rates back to neutral by the end of the year, the recent weakness does not will probably not be sustainable. This suggests, at the very least, that the recent decline in USD/JPY and the rallies in EUR/USD and GBP/USD may not have much room left.

Fed Chairman Jerome Powell’s remarks on Thursday will come under scrutiny and are flagged as having the potential to reignite the Dollar’s recent bull run. ECB President Christine Lagarde and BoE Governor Andrew Bailey will also be speaking, so divergence in central bank policies will be an important theme in the FX market for the rest of the week.

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