A recent rally of the US dollar looks quite odd given mounting concerns over the debt ceiling. The standoff in talks is not beneficial for the greenback as the prolonged negotiations pose a risk to the economy.

Although lawmakers have made lots of optimistic statements about the talks, there has been no result yet. Speaker Kevin McCarthy told reporters “We do not have a deal,” adding that they have been “going back and forth” with the White House and it is “not easy.” “It takes a while to make it happen and we are working hard to make it happen,” he noted.

A potential deal is 70% ready. The parties are trying to reach an agreement on raising the debt ceiling and setting a two-year budget for the federal government. Besides, the X-Date is June 1st. However, analysts see a few more days of wiggle room.

If the US Treasury still has money after the deadline, talks may continue. Nevertheless, market participants believe that it is just a political game in which each party is trying to take the upper hand. So, investors are confident that lawmakers will not allow the government to default on the debt,

Therefore, investors pay more attention to other factors – economic reports and monetary policy prospects. The US dollar has plenty of bullish factors now. It is likely to extend its third-week winning streak.

In the morning, it rose to a 2-month high above 104. The US currency has been growing for the whole week as well as government bond yields amid strong US GDP data and less dovish than expected Fed’s meeting minutes.

While the US economy remains resilient despite high key rates, the central bank will hardly shift to monetary easing this year. Nevertheless, recent economic data and the agreement on the debt ceiling could affect the bullish sentiment on the greenback.

Ahead of a long weekend, sellers have decided to lock in profits. Therefore, a correction may take place. At the end of the Asian session, the US dollar slid into the range of 104.0–104.3 for the first time this week. Its trajectory was very volatile.

The next target levels are located at 102.85 (support level) and 104.31 (resistance level from May 25).

Given such positive macro stats, a small correction occurred and the pair fell to 139.7. The trajectory of the Japanese currency largely depends on risk sentiment in stock markets.

A steady rise in Treasury yields after Kazue Ueda’s hawkish comments somewhat eased the pressure on the yen today. The dollar/yen pair was moving in the price corridor of 139.5–140.1.

Now, the resistance levels are seen at 140.2 and 140.5. The support level after the breakout of 139.7 shifted to 139.4.

Commodity currencies incurred big losses because of a steady increase in the US dollar this week. However, they managed to recover early Friday. After falling to the lows of November last year, the aussie resumed growth in the Asian session.

Following a rollback of the greenback, the aussie rebounded to 0.6525 from its six-month low. The pair's rise was also driven by China's currency intervention and the improved sentiment in the Asia-Pacific region.

The AUD/USD was fluctuating in the range of 0.6490–0.6529. Moreover, the aussie grew even despite predictions of a policy reversal by the RBA. However, further upward movement still looks fragile.

The Australian dollar needs to break through its March low of 0.6565. If so, this level will turn into support. As risk aversion prevails in stock markets, this scenario looks unlikely.

The New Zealand dollar also bounced off from its multi-month lows at the end of the week. It took advantage of the correction of the US dollar and entered the upward range of 0.6048–0.6084. On the daily timeframe, the kiwi advanced to 0.6070.

Recently, it has been trading with a bearish bias, declining by more than 3% in a week. The kiwi lost ground after the Reserve Bank of New Zealand hinted at the end of the tightening cycle. Therefore, the overall outlook remains bearish.


00:00 Intro
00:36 US
02:06 USDX
03:28 JAPAN COINCIDENT INDEX
04:39 USD/JPY
05:28 AUD/USD
06:39 NZD/USD

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