Currency markets sharply unchanged

US dollar drifting ahead of FOMC

Currency markets are steadfastly refusing to get drawn into the noise surrounding the US debt ceiling and the ongoing Evergrande saga, remaining laser-focused on tonight’s FOMC meeting. The dollar index closed barely changed at 93.20 overnight, having probed the downside intraday. Some modest strength in Asia has seen the dollar index creep higher to 93.27.

That has left the major currencies drifting, content to range trade ahead of the FOMC. USD/JPY has drifted 20 points higher to 109.50 after the BOJ left policy unchanged but downgraded its export outlook, but otherwise remains confined between 109.00 and 110.00. EUR/USD and GBP/USD have edged slightly lower from their New York closes to 1.1720 and 1.3650. USD/CAD continues to consolidate its recent gains, hovering at 1.2795 with a commodity rebound offset by political nerves and the FOMC outcome.

AUD/USD and NZD/USD remain anchored near the bottom of their recent ranges at 0.7240 and 0.7010, with the Melbourne earthquake this morning having little to no impact. Both antipodeans remain vulnerable to further drops in risk sentiment. Of the two, NZD/USD looks the most vulnerable. A loss of 0.6980 signalling a potential unwind of the RBNZ inspired rally and could see NZD/USD fall to near 0.6800 if the global fear mood darkens.

Asian currencies also look to be on FOMC watch after USD/CNY trading resumed today leaving USD/CNY opened higher today at 6.4755, only to edge lower to 4.4740 in narrow trading. That is still somewhat higher than today’s PBOC fixing at 6.4693, suggesting markets are nervous about Evergrande-driven currency weakness. However, the overall stability of both the onshore and offshore yuan’s today has dampened any nerves in Asia FX, leaving USD/ASEAN barely changed.

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