The U.S dollar scaled two-year peaks, as a wave of risk aversion hit global markets

• The Chinese yuan posted its largest three-day losing streak in nearly four years
• The dollar is increasingly in vogue given the dimmer outlook for the world economy
• French President’s election victory over far-right rival Marine Le Pen quickly faded

Forex market 

The U.S. dollar scaled two-year peaks, as a wave of risk aversion hit global markets, while the Chinese yuan posted its largest three-day losing streak in nearly four years on growing worries of an economic slowdown in the world's second-largest economy. 

With the war in Ukraine entering the third month and growing concerns of a China-wide COVID-19 outbreak sparking a rout in Chinese stocks, investors dumped currency market darlings like the Australian dollar and the offshore Chinese yuan. Against a basket of its rivals, the dollar rose to 101.86, a level it last tested in March 2020. 

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It was last at 101.76, up 0.7%, its largest daily percentage gain since March 11. The dollar is increasingly in vogue given the dimmer outlook for the world economy, coupled with the Federal Reserve's ever assertive rhetoric about big rate hikes to help it tame inflation. China's struggle to contain the COVID-19 is adding to risk aversion that's partly behind the dollar's dominance. 

The People's Bank of China on Monday said it would cut the FX reserve requirement ratio (RRR) by 100 basis points to 8% beginning May 15, to "improve financial institutions' ability to use foreign exchange funds", according to an online statement. It was a move aimed at slowing the depreciation of the yuan. We expect this RRR cut to slow down CNY depreciation in the near term, though it would also depend on the broad U.S dollar path and overall sentiment toward Chinese growth. 

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The Aussie, which was one of the biggest gainers in currencies in the first quarter of 2022 thanks to surging commodity prices, fell broadly. It dropped 0.9% against the U.S. dollar. The euro's tiny gains after French President Emmanuel Macron's comfortable election victory over far-right rival Marine Le Pen quickly faded, with the single currency down 0.9% at $1.0717, against a resurgent dollar. The latest positioning data for last week showed hedge funds trimmed their long euro bets.

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Euro-EUR

The single currency traded lower with the war in Ukraine entering the third month and growing concerns of a China-wide COVID-19 outbreak sparking a rout in Chinese stocks. French President Emmanuel Macron's comfortable election victory over far-right rival Marine Le Pen quickly faded with the single currency down 0.9%. Overall, the EUR/USD traded with a low of 1.0769 and a high of 1.0850 before closing the day around 1.0797 in the New York session.

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Japanese Yen-JPY

The Japanese Yen steadied as markets faced a multitude of risks including central banks tightening policy just as economic growth momentum slows, investors have been buying up dollars. The dollar index, which measures the U.S currency against a basket of rivals, has risen 6.5% so far in 2022. It has gained 3.65% so far this month. Overall, the USD/JPY traded with a low of 127.71 and a high of 129.09 before closing the day around 128.53 in the U.S session.

British Pound-GBP

The British Pound fell yesterday to its lowest level since September 2020 against a strengthening dollar, while money markets scaled back their bets on future monetary policy tightening by the Bank of England. Money markets are pricing around 150 basis points (bps) of BoE interest rate hikes by the end of this year. Overall, the GBP/USD traded with a low of 1.2820 and a high of 1.3033 before closing the day at 1.2830 in the New York session.

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Canadian Dollar-CAD

The Canadian Dollar will remain at the center of the country's financial system, the central bank chief said on Monday, responding to questions about a Conservative leadership candidate's pledge to make the country the blockchain capital of the world. There are promising benefits from innovation in the financial sector. Overall, USD/CAD traded with a low of 1.2565 and a high of 1.2723 before closing the day at 1.2708 in the New York session.

Australian Dollar-AUD

The Australian Dollar was deep underwater today as concerns about the impact of coronavirus lockdowns on Chinese demand sank commodity prices and risk trades in general. It has now shed 2.6% in just two sessions and risks further retracement. The Australian Dollar was undermined by sharp falls in commodity prices with iron ore - Australia's biggest export earner. Overall, AUD/USD traded with a low of 0.7358 and a high of 0.7416 before closing the day at 0.7410 in the New York session.

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Euro-Yen EUR/JPY

EUR/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also issuing a bullish stance. The Relative Strength Index is above 61 and lies above the neutral zone. In general, the pair has lost 0.19%.

Sterling-Yen GBP/JPY

Currently, GBP/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 60 reading and lies above the neutral zone. On the whole, the pair has lost 1.38%.

Aussie-Yen AUD/JPY

Currently, the cross is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 76 reading and lies above the neutral region. In general, the pair has lost 1.62%.

Euro-Sterling EUR/GBP

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 53 and lies below the neutral region. Overall, the pair has gained 1.19%.

Sterling-Swiss GBP/CHF

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 45 and lies below the neutral region. In general, the pair has lost 1.15%.

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