Dollar Lifts as Iran Hits Israel, Geopolitical Risk Climbs

The Dollar Index (DXY) soared to finish above 106.0 (104.95) as geopolitical risks rose amidst hawkish Fed bets. News that Iran fired a huge salvo of missiles and drones toward Israel boosted the Greenback against its Rivals.

Israel reported only minor damage as most drones were intercepted before entering Israeli territory. However, the retaliatory attack from Iran was its first-ever direct offensive against Israel. 

Besides the geopolitical risk aversion, hawkish remarks from Boston Fed President Susan Collins further pressurized currencies against the Dollar. Collins said that due to the latest inflation numbers, she expects the Fed to make its first rate cut later than previously thought. 

The risk-leading Australian Dollar (AUD/USD) tumbled to 0.6468 from 0.6540 Friday, losing 1.3%. New Zealand’s Kiwi (NZD/USD) slumped to 0.5935 from 0.6000. 

Sterling (GBP/USD) plummeted to 1.2450 from 1.2550. The rise in risk aversion and hawkish rhetoric from Fed officials pushed the Pound and other currencies lower. The Euro (EUR/USD) tumbled 0.85% lower to 1.0635 from 1.0725, a 5-month low. 

Against the haven sought Japanese Yen, the US Dollar eased modestly to 153.03 against 153.30. In volatile overnight trade, the USD/JPY pair slid to an overnight low at 152.59 before settling. 

Risk aversion lifted the Dollar against the Asian and Emerging Market currencies. USD/CNH (Dollar-Offshore Chinese Yuan) rallied to 7.2675 from 7.2550. The USD/SGD (Dollar-Singapore Dollar) pair soared to 1.3615 from Friday’s open at 1.3530. 

Global bond rates fell as prices rose on flight-to-safety support. The US 10-year bond yield slid to 4.52% from 4.59% Friday. Germany’s 10-year Bund yield lost 10 basis points to 2.36%.

The IMM futures market reported that net speculative long US Dollar bets rose against the Yen and British Pound in the week between 3-9 April. Net short Yen (long Dollar) bets were the highest in 17 years. 

Economic data released Friday saw UK February GDP (m/m) unchanged, at 0.1%. Preliminary US Michigan April Consumer Sentiment slid to 77.9 from 79.4 previously, and lower than estimates at 79. 

China’s March Trade Balance saw its Surplus fall to $58.55 billion from $125.16 billion, lower than estimates at $70.2 billion. 

EUR/USD – the shared currency tumbled to 1.0635 from 1.0725, its lowest level since November 2023. Weighed by risk aversion as well as diverging rate scenarios between the ECB and Fed, the Euro traded to an overnight low at 1.0622 before settling. AUD/USD – The Aussie Battler plummeted against the Greenback to 0.6468 (0.6540 Friday) on rising risk aversion as well as overall US Dollar strength. In choppy trade, the Australian Dollar saw an overnight low at 0.6459 before recovering modestly.USD/JPY – against the trend, the Dollar dipped against the Japanese Yen to 153.03 against Friday’s open at 153.30. The overnight low traded in the USD/JPY pair was at 152.59. Lower US bond yields and haven support kept the USD/JPY pair muted.GBP/USD – Sterling plummeted 1% to finish at 1.2450, down from Friday’s opening at 1.2550. The British currency was pounded to an overnight low at 1.2426 before rallying. The overnight high traded was at 1.2559.On the Lookout: 

New Zealand kicked off today’s light calendar with its NZ March Services PSI, which fell to 47.5 from 52.6, lower than forecasts at 53.4. New Zealand’s February Annual Visitor Arrivals rose 35% from 21.7% previously, beating estimates at 23.0%. The Kiwi (NZD/USD was little changed at 0.5935 following the report.

Japan follows with its February Machinery Orders (m/m f/c -0.2% from -1.7%; y/y f/c -8.0% from -10.9% - ACY Finlogix). China releases its 1-Year Minimum Lending Facility (f/c 2.3% from 2.5% - ACY Finlogix). Europe starts off with the Eurozone February Industrial Production (m/m f/c 1.1% from -3.2%; y/y f/c -4.2% from -6.7% - ACY Finlogix). Canada starts off North America with its Canadian February Final Manufacturing Sales (f/c 0.7% from 0.2% - ACY Finlogix). 

The US rounds up today’s calendar with its New York April Empire State Manufacturing Index (f/c -9 from -20.9 – ACY Finlogix), US March Headline Retail Sales (m/m f/c 0.3% from 0.6%; y/y f/c 2.5% from 1.5% - ACY Finlogix), US March Retail Sales Ex-Autos (m/m f/c 0.4% from 0.3% - ACY Finlogix). 

Trading Perspective: 

The Dollar gained support over the weekend on rising geopolitical risk as well as growing hawkish sentiment from the Federal Reserve. Expect Asia to maintain a bid Dollar with the risk of further escalation in the Middle East conflict. 

The latest IMM futures market (for the IMM week 3-9 April) reported that net speculative long US Dollar bets rose the most against the Japanese Yen, British Pound, Euro, and the Australian Dollar. Net short Yen (long Dollar) bets were the highest in 17 years. Sterling (GBP/USD) long bets rose 0.81%. While Euro long bets were declining, they rose 0.73% in that same period. 

Net speculative short Aussie (long US Dollar) bets climbed 1.68%.  The latest IMM report highlights that the risk to these growing US long bets is a reversal. Expect heightened FX volatility today as these factors play out. 

EUR/USD – Look for the Euro to find immediate support today at 1.0620 (overnight low traded was 1.0622). The next support level lies at 1.0600. Immediate resistance lies at 1.0670, 1.0700 and 1.0730. Expect more choppy trade, likely between 1.0600-1.0700. Net Euro short bets should put a base on the Euro at the 1.0600 level.USD/JPY – the Greenback dipped against the Yen to 153.03 from Friday’s open at 153.30. Immediate support today lies at 152.70 followed by 152.40. Immediate resistance can be found at 153.35 (overnight high) and 153.65. The IMM report saw net short speculative Yen (long US Dollar) bets at the highest in 17 years. That screams “danger” to long USD/JPY bets.AUD/USD – The Aussie Battler tumbled against the Greenback as risk aversion grew on the back of rising geopolitical tensions. Look for immediate support in the AUD/USD pair at 0.6450 followed by 0.6420. Immediate resistance can be found at 0.6500 and 0.6540. Look for the Aussie to consolidate in a likely range today of 0.6450-0.6550. GBP/USD – Sterling was pounded lower to 1.2450 from 1.2550 Friday. Look for immediate support at 1.2420 (overnight low traded was 1.2426). The next support level lies at 1.2390. Immediate resistance can be found at 1.2470, 1.2500 and 1.2530. Look for another choppy trading session in the GBP/USD pair, likely between 1.2430-1.2530.Have a good Monday and trading week ahead all. 

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