USD: Under pressure? - Westpac

Sandeep Kanihama FXStreet Contributor

The US dollar is down against most major currencies over the past week, with the initial catalyst for its decline coming from a rather surprising source, according to Sean Callow, Research Analyst at Westpac.

Key Quotes

“Friday’s EU agreement on migration, despite doubts over its workability, clearly caught euro traders off guard. EUR/USD rose more than a cent on Friday and remains up 0.8% over the week at time of writing.”

“There were some wobbles on Monday as German chancellor Merkel faced down a rebellion within her coalition over migration, but this was resolved – at least for the short term. Having thus fended off another local political challenge, EUR/USD looks comfortable inside the rough 1.15-1.18 range of the past 6 weeks.”

“We were a little surprised that AUD/USD also rallied on the EU deal. But somewhat more logically, much of A$ movement in recent sessions has been driven by the Chinese yuan.”

“The yuan’s fall against a rallying dollar was larger than those of other Asian currencies, an unusual situation. This threatened to produce a self-perpetuating wave of USD/Asia gains, with collateral damage on AUD/USD.”

“So the comments from the top officials at China’s central bank on Tuesday about keeping the yuan stable should be a circuit-breaker. The US tariffs on $34bn of Chinese goods imports that take effect Friday and China’s retaliation will linger over the yuan.”

“But for now, the likely resumption of USD/China stability, plus the steadying EUR, point to Dollar Index consolidating rather than making a run at 96. Reaching that level might require markets to price in quite a bit more than the current 34bp in Fed funds hikes before year-end.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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