Asian shares dropped on concerns new coronavirus outbreaks in the region could undercut an economic recovery, even as robust momentum in the United States prompts the Federal Reserve to contemplate a quicker exit from accommodative policy. Japanese and Australian shares took the brunt of early losses, with the Nikkei falling 0.91% and the ASX/200 index down 0.37%, while the South Korean market was 0.71% lower.

European futures are flat in early trading, with limited relief in commodities.

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Concerns over the rapid spread of Delta-variant COVID cases have cast a temporary pall on oil prices as rhetoric around limiting international travel continues to percolate, weighing on the Canadian dollar with USDCAD +1.2350 into the London Open. 

AUD is under a bit of pressure this morning as the USD firmed up, equities slipped, and COVID-related lockdowns dampened sentiment with rising delta-variant cases against the backdrop of a comparatively lower vaccination rate.

With the Delta variant spreading around the world, markets are paying more attention again.

There seemed to be some USD demand during the last 24 hours with EURUSD testing towards 1.1900, but there was no follow-through. As a result, market participants will likely be cautious ahead of the month-end.

EURCHF has shown little momentum and stuck smack in the middle of the mid-term trend lines.

With the potential of calendar-related flows impacting the price action over the subsequent few sessions, stay flexible and play the range.

Over in Asia, USDTHB jumped with more COVID cases and mobility restrictions in Thailand. As a result, forward points are higher on the spot move. News of the central bank easing FX rules came around lunchtime but with no further details. Still, price action suggests spot supported above 32.00.

Slowing economic activity in China, widening credit spreads, and an increasingly negative credit impulse point to a more challenging environment for Chinese assets. Currency linkers for economies exposed to a China slowdown (e.g., Australia, Chile, Korea, Taiwan) could remain out of favor. However, USDKRW has traded heavily today, with the spot closing at the low of 1128.70. Exporters were likely active sellers of USD following the announcement of another KRW1.8 trillion container ship orders with Hyundai and Daewoo Shipping.

 Are markets underestimating greater unpredictability in the Fed's policymaking? By signaling more confidence in achieving above-target inflation this year and next, the central bank is implicitly more forward-looking and data-dependent as a result. And in turn, it should make the FX market more sensitive to positive US data surprises. Not the best of environments in my view to be strapping on many rate-sensitive risks.