USD may struggle to sustain any positive momentum - ANZ

The USD may struggle to sustain any positive momentum against the G3, as the market continues to debate whether the Fed really does have cause to be optimistic about growth (and inflation), according to the research team at ANZ.

Key Quotes

“This week’s data are unlikely to shift that view, as they are more likely to be on the soft side. While a weak PCE deflator and consumer spending are priced in; a solid business capex print and strength in sentiment data may be needed to allay the market’s concerns of weak Q2 GDP growth.”

“The USD is also unlikely to receive any support from this week’s Fed speakers, as both Kashkari (who objected to the most recent Fed hike) and Harker have both warned against rising rates in a low inflation environment. Chair Yellen is unlikely to add anything new to her post FOMC press debrief.”

“The USD rally that we have seen in the past week feels a bit different. While previously the fortunes of the dollar were dictated by data and the relative strength of the US economy, the recent strength feels more precautionary in nature and cyclical currencies are starting to under-perform. As such, the path of liquidity rather than data will become an increasing focus. Some emerging market central banks have used the inflation pulse to back away from more hawkish rhetoric. The key question for markets is whether some of the majors will follow suit. For now, we think not.”