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ING’s Chris Turner notes that despite sizeable joint FX intervention in USD/JPY and lower Oil prices, the US Dollar (USD) is not broadly weaker as markets still price a Federal Reserve (Fed) hike in September. He highlights upcoming US jobs data and ISM manufacturing as key inputs, and sees the US Dollar Index (DXY) finding support near 99.35/40 and potentially breaking back above 100 this week.
DXY holds as markets eye Fed
“In theory, the dollar should be broadly weaker today after the US and Japanese authorities confirmed joint FX intervention and the Japanese probably sold $70-80bn over the last three days. Lower oil prices should also be weighing on the dollar on reports from US President Donald Trump that negotiation, rather than military firepower, is Washington’s preferred method of engaging with Iran.”
“The fact that the dollar is not broadly weaker probably owes to the unresolved issue of whether the Federal Reserve will hike in September. “
“For today, the focus should be on a reasonably strong July ISM manufacturing release.”
“It seems the only way the Fed can avoid hiking in September is if the US data is poor enough. A major input to that decision comes this week in the form of US jobs data, including JOLTS job openings, ADP, and Friday’s non-farm payrolls report. On NFP, consensus is around +75-80k and probably not quite weak enough to rule out a Fed hike. In other words, the case for a sustained sell-off in the dollar has yet to be made.”
“The DXY dollar index will be bounced around by the USD/JPY intervention story, but with decreasing marginal impact from this news story, we suspect DXY could find support near 99.35/40 and can break back above 100 this week.”
