The quick rewinding of the risk-on mood music triggered solely by higher US yields sees the US dollar trading more robustly this morning.

The US Treasury 7y auction tailed 4.4 basis points as participants take a complete step back from buying bonds in this environment, setting the tone for the FX market overnight.

The higher yields are starting to exert a domino effect on commodities, and the widely held commodity linker currencies are feeling the higher US yields pinch this morning.

This taper’s repricing is becoming less stealthy as the significant rise in yields is global, not just a US phenomenon. At this stage, the repricing is not aligned with the US Fed policy reaction functions. If that does become the case and the US yields move head and shoulder above the rest, the dollar takes flight.

Although the yield back up this week was more of a globally synchronized event, my main scenario still expects yields to be led by the US this year, especially with the enormous fiscal US package likely to be finalized in the coming weeks, which should continue to offer support to the US dollar.

Malaysian Ringgit

US yields continue to climb, and the US dollar is stronger across the board as a result. Oil is trading lower as profit-taking is setting in ahead of next week’s OPEC meeting. So, we should expect the MYR to change hands on a defensive bias.

Gold under pressure

The rise in real yields has seen gold under pressure with everyone selling. Although positioning is cleaner, the overall market is still long, and ETF selling negatively affects the market on actual position clean out rather than just speculative sell-off. Which is more worryingly an early sign of a capitulation.

Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi