US dollar survives a standing count - Westpac
Sean Callow, Research Analyst at Westpac, explains that the US dollar has been quite mixed against major currencies this week but in recent sessions has looked a little more promising.
Key Quotes
“Perhaps most notable have been rejections after sharp USD declines. This includes EUR/USD’s first trade above 1.20 since Jan 2015, which was followed by a tumble back below 1.19, AUD/USD’s 4 week highs just short of 0.80, which at time of writing has become a slide back under 0.7900 and the 4 month lows on USD/JPY which were followed by a 2 yen rally inside 2 days.”
“The dollar’s nascent recovery is tiny in the context of a year of substantial decline, long since wiping out the bounce after the US election. There has been some help for the dollar lately from US data momentum, with strong readings including Jul retail sales, Aug consumer confidence and revised Q2 GDP (now the strongest quarter since Q1 2015). For all the weakness in inflation data, Fed officials have plenty of encouraging activity and sentiment data to support the case for a rate hike before year-end. Pricing for this has lingered in the 35-40% range, up slightly on the week despite the rally in the 10 year Treasury.”
“The latter of course was partly encouraged by the latest provocation from North Korea. Firing a missile directly over Japan and at a lower altitude was a clear escalation. Gold, Treasuries and the haven yen all rallied, while equities and AUD slumped. Yet nerves gradually calmed as leaders in Japan and South Korea stressed a diplomatic response rather than “fire and fury”. USD/KRW remains thoroughly range-bound.”
“Plenty of risks still loom for the dollar once Congress returns after the Labor Day holiday, with only 12 days to reach agreement on raising the debt ceiling and funding government. One can only hope that the devastation of Hurricane Harvey will galvanize Congress to work together a lot better than they did before the recess. If not, then fresh lows for the US dollar seem assured.”