As risk appetite increased and equities gained on Friday, the greenback dropped from a nine-and-a-half-month high, but near-term prospects remained relatively positive.
As central banks begin to reverse COVID-19 pandemic-related stimulus, dollar bulls are supported by concerns that the COVID-19 delta variant may stall the global economic recovery.
A measure of the strength of the dollar against six rivals rose to its highest level since November earlier this month, before trading 0.1% lower at 93.491 index points. 1% gain for the week, the highest gains in two months
The American dollar index reached the top of a double-top development in a monthly chart the previous day but did not offer a daily confirmation. A clear break of the key hurdle of 93.20, now supported, was achieved shortly thereafter.
This means that the price is likely to extend its recent gains to the yearly top around 93.45, but any further gains will be challenged by an overbought relative strength index.
The odds of witnessing 94 index points on the chart cannot be ruled out if dollar bulls ignore RSI signals and cross the 93.50 resistance band.
The minutes of the US Federal Reserve’s recent meeting also gave the U.S. dollar a boost, with hints that asset tapering could begin as early as 2021. Currency traders are now anxiously waiting for more clues on an asset tapering expected to be discussed at the Jackson Hole symposium in the coming days.
The number of COVID-19 and its Delta strain deaths continues to climb relentlessly, with the world’s largest economy, recording its most fatalities since Q1.
Currency markets were also hit by the loss of riskier currencies; Australian and New Zealand dollars struck nine-month lows.
Despite being under lockdown to curb the latest COVID-19 outbreak, the Australian dollar has missed its best performance since September 2020 by 3% so far this week.
As it announced its policy decision earlier in the week, the New Zealand reserve bank delayed hiking its interest rate.
Furthermore, the New Zealand dollar has fallen 2.9% for the week, its lowest level since September 2020. COVID-19 continues to spread throughout the country, pushing it under lockdown.