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 expects higher energy prices and under-priced Fed tightening to keep DXY supported near term around the 99.00 area.

Dollar support from Fed repricing

"High energy prices and an above-consensus August NFP reading mean the dollar should really be doing better than it is. The fact that it is not probably owes to the still constructive investment environment, where global equity markets, including emerging markets, continue to perform well. In fact, of the various correlations we monitor, the inverse correlation between global equities and the dollar seems to be the strongest right now – far higher than the dollar's link to oil prices."

"Looking ahead this week, the US macro focus should be on Friday's August CPI data, where month-on-month readings at 0.4% and 0.2% for headline and core should be enough to sway the Fed towards a 25bp rate hike on 16 September. This is just priced with a 58% probability at the moment. The US Treasury market will also be in focus, given $119bn auctions of three, 10 and 30-year bonds."

"Wednesday also sees the start of the US Treasury's slightly controversial buy-back operation of longer-dated Treasuries, where any Treasury weakness stands to weigh on the dollar."

"We prefer to back the themes of higher energy prices and an under-priced Fed giving some support to the dollar in the near term. The US Labor Day public holiday will limit activity today, but DXY can probably drift higher in a 99.00-99.50 range."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)