USD modestly higher as markets await data – Scotiabank

The US Dollar (USD) is tracking a little higher overall in cautious trading. Markets are waiting for delayed US data on the one hand and more clues on the tech sector outlook on the other, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Upside potential is limited ahead of jobs data

"US data reports will start to trickle in later this week and there are high profile earnings reports (Nvidia Wednesday) in the next few days which will help shape the outlook for stocks. Risk appetite looks a little mixed to start the week— European markets are down but US equity futures are marginally higher. Bonds have caught a minor bid and the USD is taking advantage while markets mull the outlook for US interest rates. Everyday food inflation is lower than the volatile period through the pandemic but basic food price inflation remains elevated."

"President Trump contends that affordability is not a big issue and trends are improving under his presidency. He suggested over the weekend that further tariff rollbacks are unlikely. But with December OIS indicating only around 40% risk of a 25bps cut next month now, markets are concluding that inflation is a bigger issue for Fed policymakers than jobs right now. It will be up to the NFP data for September, set for release Thursday, to make or break that argument. The early consensus for payrolls is a 50k gain. It will likely take weaker data to boost Fed easing bets for next month again."

"On the charts, DXY gains follow Friday’s consolidation (inside range) signal on the daily chart and small double bottom signal on the intraday chart. Minor gains in the index towards 99.90/00 may develop in the next day or so but it’s not obvious that a significant rebound can develop from here. Note the CLP is firmer, nearing its March high, following Chile’s weekend elections. The presidential vote will go to a runoff between far left and far right candidates on December 4th."