AMERICAS OIL: Wildfire Emerges in Alberta’s Fort McMurray

• The US dollar lost ground on Monday as markets assess the latest geopolitical concerns regarding the Russia/Ukraine conflict and tariff related developments between the US and China. The prevailing trend of greenback weakness has resumed, placing the USD Index at the lowest level for a month and narrowing the gap with the bear trigger at 97.92. The formation of a bearish engulfing daily candle on Thursday last week adds to the S/T downside focus.
• An extension of dollar weakness was seen following a below-expectation ISM manufacturing print, however, the subsequent stabilisation for equity markets allowed the DXY (-0.50%) to moderately recover from its worst levels.
• Despite the initial pessimistic tone for broader risk sentiment, AUD, NZD and NOK are the best performing currencies to start the week. AUDUSD received support in the low 0.6400s last week keeping bullish trend signals intact. A continuation higher would open 0.6550, a Fibonacci retracement, and the November 25 high. Above here, the key medium-term focus is on the US election related highs at 0.6688.
• In similar vein, a 1% rise during today’s session has prompted NZDUSD to return to an important zone of resistance between 0.6025/40. A close at current levels would be the highest since the US election, signalling scope for a more protracted recovery towards 0.6168, the 76.4% retracement of the Sep ’24 – Apr ’25 selloff.
• USDJPY extended its pullback from last Thursday’s 146.28 high, and spot now trades back below 143.00. A continuation lower would expose 142.12, the May 27 low. Clearance of this level would resume the bear leg and signal scope for a move towards a key medium-term pivot around the 140.00 mark.
• RBA minutes kick off Tuesday’s economic calendar, before Swiss and Eurozone inflation data. JOLTS job openings will headline the US session. Bank of Japan Governor Ueda is due to speak at the Research Institute of Japan, in Tokyo.

Chicago Fed’s Goolsbee (’25 voter) is hesitant to make a transitory argument for tariff-driven inflation, in contrast to Governor Waller, another FOMC participant at the dovish end of the spectrum, although it’s a view that’s seemingly shared by most of the committee after no apparent discussion at the May FOMC meeting. He sees surprisingly little tariff impact in data released so far but suggested that the April PCE data could be the last vestige of pre-tariff data. 

• “If you only looked at official data you’d be behind the curve. So far we’ve had the last two months, excellent inflation reports but when we’re out talking to people they’re like just wait, just wait, we haven’t seen it yet but the tariffs are coming. So we’ve got to have a little bit of anticipation.”
• “I would say surprisingly little direct impact so far in the data that’s coming out. We don’t know if that will remain true for the next month or two.”
• “PCE inflation […] the backward looking average over the past year is 2.1% Y/Y so it’s pretty close. […] I think that’s the last vestige [of pre-tariff data]. I think these last months of inflation look pretty good to me. They’re why I thought underneath this thing was looking decent on dual mandate grounds.”
• “The more sophisticated thing that we’ve got to decide is if something raised prices, one time and stopped raising them […] econ 101 would say it’s a one-time impact. If you think that’s a transitory shock to inflation, there is a sense in which you should just ignore it when setting monetary policy. [But] We learned the last time around this thing hit the supply chain. […] I’m a little gun shy about making that argument again.”

Overnight reverse repo takeup fell $180B Monday, the biggest drop since the start of the year ($233B on Jan 2) and more than reversing Friday's $150B jump.

• The latest level of $135.8B represents an 11-session low.
• A sharp drop-off in takeup was expected due to month-end dynamics reversing. Indeed the latest level is within the roughly $125-175B range seen in most of late April through the start of last week.