SINGAPORE/TOKYO- The US dollar was supported on Monday amid renewed worries about coronavirus restrictions in Asia, but investors are heavily positioned for it to fall while the US Federal Reserve keeps rates low.
Easing commodity prices and virus outbreaks in Singapore and Taiwan – where COVID-19 had been contained – helped modest dollar gains of 0.3 percent against the Australian dollar and 0.4 percent versus the New Zealand dollar.
The greenback was little changed against the euro and the yen, but it remains close to testing major support levels, which if broken could see a return to a downtrend that pressed it lower through April.
A dollar bounce that followed higher-than-expected inflation data last week has also faded as traders figure the Fed will keep rates low.
The dollar last traded at $1.2135 per euro and has support around $1.2179. The dollar index is likewise, at 90.367, just above key support at 89.677 and 89.206. It bought 109.32 yen and traded at $0.7759 per Aussie and $0.7223 per kiwi.
Fed minutes, from an April meeting that predated the data surprise on inflation last week, are due on Wednesday and are the next market focus for clues on the Fed’s thinking.
“We expect the minutes … to reiterate that policymakers consider the pick up in inflation to be transitory,” said Kim Mundy, a currency strategist at the Commonwealth Bank of Australia in Sydney.
“The upshot is that we do not expect the (Fed) to consider tapering its asset purchases soon,” she said. “The dollar is expected to resume its downtrend this week after last week’s CPI-inspired boost.”
