USD: BBDXY - Stalls Around the 1210 Area, Market Still Worried About Powell
The BBDXY range overnight was 1206.41 - 1210.75, Asia is currently trading around 1206. The USD tested the 1210 area again overnight but has drifted lower as it fails to accelerate. There is a growing belief that even though Trump has walked back the potential “firing of Powell”, some market participants believe the decision has already been made and it's more a question of timing. This adds credence to the markets inability to follow through on any USD strength even with positioning at extremes, as should Trump actually follow through it is the USD that will take the brunt of the reaction, with the risk of a sharp knee-jerk move lower.
- Andy Constan on X: “The big issue for me regarding the USD vs DM. For two decades risk Local bond markets in non U.S. were uninvestable for balance to an equity portfolio due to very low yields and thus bad hedge to equities. BUT now DM government bonds have adequate yields to provide meaningful hedges to ROW Dm equities. Making ROW Local DM risk parity at least as attractive as US risk parity perhaps much more attractive. Hence both repatriation and US flows to ROW are a tailwind to DM ROW currencies and a head wind to DXY. All this while USD assets are overweighted vs any time in history in institutional portfolios.”
- Robin Brooks on X: “The Dollar is up 2% in July. It ignored mounting tariff noise and yesterday's headlines that the President discussed firing Powell with Republican lawmakers. There's a lesson here. USD is rising as tariffs start to push up inflation. That's what matters.”
- USD Positive US Data Surprises Point To More USD Support In The Near Term : Thursday's session delivered positive US data surprises across a number of releases. Retail sales was well above expectations, while initial jobless claims ticked lower and the Philly Fed business outlook surged back to Q1 levels. The Citi US economic surprise index is now back close to May highs and this index is generally outperforming equivalent readings for other major economies/region. In turn this points to more support for the USD, all else equal in the near term.
Fig 1: BBDXY Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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USD: Headwinds Mount, Can It Bounce ?
The BBDXY range overnight was 1201.66 - 1209.66, Asia is currently trading around 1209. The window for a peaceful resolution in the middle east seems to be closing and with the US potentially now getting involved, the USD is finally looking to bounce. The USD has been able to ignore the multitude of reasons for it to bounce, but with the pressure on risk mounting and the market positioned very short USD the probabilities of some sort of a retracement is increasing. We have seen this movie before though, is it different this time ?
- Bloomberg - “Israel-Iran situation “has demonstrated that the USD still retains a bit of haven status in certain situations, such as when the War is seen to raise the risk of disrupting global oil supply, and when the war diverts traders’ attention away from those risks that are US centric, including, of course, tariff risk, and the US’s fiscal uncertainties,” wrote Thierry Wizman, a macro strategist at Macquarie Group in New York. “But we wouldn’t stretch this to say, however, that foreign traders have found renewed confidence in the US and its political economy,” he said.”
- ZeroHedge on X: "Biggest Pain Trade Is Long The US Dollar": Latest Fund Manager Survey Finds "Everyone Is Short The Buck”. See Graph Below.
- The BBDXY has bounced strongly off its 1200 support area, it is still in a clear downtrend but with positioning at extreme levels and headwinds increasing the potential for some sort of a retracement is increasing.
- The BBDXY rejected the 1225 area pretty strongly, the USD should continue to be met with supply towards the 1225/30 area, only a sustained break above here would start to get the bears a little worried.
- There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This will also result in some decent short squeezes as a lot of the market is positioned the same way.
Data/Events : Data/Events: MBA Mortgage Applications, Housing starts, Initial Jobless Claims, FOMC
Fig 1: Investor USD Position
Source: @zerohedge/BofA Research
AUSSIE BONDS: ACGB Jun-35 Auction Absorbed With More Demand Present
Today’s auction showed solid pricing for ACGBs, with the weighted average yield coming in 0.37bps below prevailing mid-yields, according to Yieldbroker. Moreover, the cover ratio jumped to 3.4444x from 2.75x at the previous auction.
- As noted in our preview, the current yield for this bond was approximately the same as the previous auction, notably about 50bps below the high recorded in early November 2024.
- The 3/10 yield curve was also around the same level as the previous auction but sits around 20bps below its recent high.
- Following the auction, both the cash line and XM remained relatively unchanged.
CHINA PRESS: Officials Cannot Host Illegal Banquets To Boost Economy
Government officials cannot host illegal banqueting under the excuse of revitalising the economy, the People’s Daily said in a commentary. Rules banning illegal eating and drinking are to prevent corruption and allow the economy to develop better, the paper said. Normal catering practices are the pulse of the economy with revenue exceeding CNY5.5 trillion in 2024 and supporting more than 30 million jobs, the paper added. Non-compliant dinners are eroding public trust and must be eradicated with a zero tolerance attitude.
