US Dollar: Range-bound support as Fed priced – ING
ING’s Chris Turner notes that resilient global equities and an above-consensus US jobs report mean the Dollar should be stronger, but risk appetite is capping gains. He highlights upcoming US CPI and Treasury auctions as key catalysts.
ING analyst Chris Turner observes that robust global equities and an above-consensus US jobs report suggest the US Dollar should exhibit strength, yet caution is warranted due to cautious risk appetite. Upcoming economic indicators, such as the US CPI and Treasury auctions, are identified as pivotal drivers. ING anticipates higher energy prices and perceived underpricing of Fed tightening to sustain the DXY near-term near the 99.00 level.
The prevailing uptrend in energy prices and an unexpectedly strong August nonfarm payrolls reading likely contribute to the Dollar's underperformance. This phenomenon is primarily driven by the prevailing positive sentiment in global equity markets, including emerging markets, which exhibit a notable inverse correlation with the US Dollar, surpassing its usual association with oil prices.
Looking ahead, the macroeconomic focus for the week centers on the August CPI data release on Friday, which will help ascertain if the Fed proceeds with a 25 basis point rate hike in September. Additionally, the US Treasury market will be under scrutiny due to the auction of $119 billion in bonds, including three, 10, and 30-year securities.
The initiation of the US Treasury's buyback program for longer-dated Treasuries on Wednesday could potentially exert downside pressure on the Dollar. While higher energy prices and an underpriced Fed are favored, the upcoming US Labor Day holiday may limit trading activity, potentially confining the DXY to a 99.00-99.50 range.
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