USD: Price Action Suggest Correction Has More To Go, Data Will Have A Say

The New Zealand ANZ business activity and confidence measures rose in June. On activity we moved back to 40.9, from 34.8 in May, while confidence rebounded to 46.3, from 36.6 prior. The improvement in June follows move lower in these headline indices since the end of Q1. We remain off cyclical highs for both measures, activity reached 50.3 in Dec last year, while confidence was at 65.7 in October last year. The Q2 averages for both activity and confidence were below the Q1 outcomes. 

• In terms of the detail, the sub-indices ticked higher, with exports up to 13.9, while investment rose to 19.9 (from 11.6 in May). Costs and wages also rose. The cost sub index to 79, while wages were at 76.1, still sub recent highs for this index.
• The construction outlook improved, but again these indices are still sub recent highs. Employment printed at 10.8, which compares with an earlier high of 18.1 (April this year).
• Pricing intentions rose to 46.3 from 45.4. Inflation expectations were unchanged at 2.71%.
• ANZ noted: “In terms of what firms are actually experiencing, there’s been a bit of a slump recently in both activity and employment. While economic growth in 1q was decent at 0.8% q/q, the omens for 2q are not looking nearly so positive” (via BBG).
• This is consistent with the softer average readings in the headline indices for Q2. 

The BBDXY range Friday night was 1192.42 - 1197.35, Asia is currently trading around 1193.50. The BBDXY again found some demand towards the 1192.00 area, the USD bounced when Trump ended trade talks with Canada on Friday. This has not followed through and the USD opens in Asia back under pressure, -0.2%.

• Robin Brooks on X: “The Dollar is down 10% this year (lhs) and S&P 500 is up 5% (rhs). Expectations for Fed cuts are partly behind this, as @BobEUnlimited flags, but above all this is markets assuming the trade war with China is over. If that's wrong, the Dollar rallies lots and S&P 500 craters...” 
• “China is bumping up against the "impossible trinity." By choosing not to devalue in response to US tariffs, it also can't ease monetary policy to counter rising deflationary pressure. China has tied its hands. Not devaluing means it chooses deflation…”
• Andreas Steno Larsen on X: “Trump: “I don’t want to pay for 10-year debt at a higher rate.” If that’s not an obvious debasement trade, what is?” The graph below shows what happened in Japan in 2012-2013 when a similar policy experiment was undertaken.
• The BBDXY has broken convincingly now below 1200, this close could prove to be significant and points to the potential start of another leg lower, first target 1150 and then beyond.
• The USD should continue to be met with supply on bounces back towards the 1210/1220 area, only a sustained break above 1240 would start to get the bears 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. Data/Events :  MNI Chicago PMI, Dallas Fed Man. Activity, NFP on Thursday will be very important.

Fig 1: Abenomics

Source: MNI/@AndreasSteno

• **CHINA JUN MANUFACTURING PMI 49.7 VS 49.5 IN MAY