DXY: A Fed hike in September? Unlikely – RBC CM

Sue Trinh, Senior Currency Strategist at RBC Capital Markets, notes that the DXY rally intensified above the 200dma (95.60 today) but the index has run into some resistance at the 61.8% of the 100.51–91.92 at 97.22 (last ~97.14).

Key Quotes                               

“A Hilsenrath article was used an excuse for USD gains, although rates markets actually rallied. The Fed watcher published an article in the WSJ, “Fed Officials Gain Confidence They Can Raise Rates This Year,” arguing that a Fed rate hike could come as early as September now that financial markets have stabilised after the UK vote to leave the EU.

Fed funds are pricing in around ~20–25% probability of a September hike and a 43% probability of a hike by yearend. As it is, RBC recently changed our Fed call and we look for the next Fed hike to come in the middle of 2017 at the earliest. The Fed has made it very clear that its reaction function includes global developments, and while markets may have stabilised for now, it will be a very long time before all of the potential volatility in Europe is behind us, even if the domestic economy remains solid.”