Down on the US dollar
By Yann Quelenn
It’s time for investors to bet against the US dollar. Today will see the release of import prices for June: markets expect a decline of -0.2%. May import prices already declined by 0.3% month on month. Except for crude oil, import prices have stood still.
Against G10 currencies and the Euro, the greenback is weakening, and we expect the trend to continue. The trend is very deep, and rooted in two causes.
One is the US Central Bank’s hesitance to normalise its monetary policy. The Federal Reserve’s governors are afraid to hike interest rates, because they fear it could knock the over-indebted American economy into recession. The second cause is the fundamental softness of that same economy, which we believe has been missed by many observers.
Surging demand for higher yielding currencies sends AUD higher
By Arnaud Masset
AUD/USD has broken its previous high of June 2015 and is continuing to climb. The move is a combination of AUD strength and USD weakness.
Investors began piling into the Aussie, even before the recent hawkish remarks by the Australian central bank. Long positions, as reported by Australia’s Commodity Future Trading Commission, have risen from zero to 37.5% of total open interest over the past six weeks. And still, we believe there is room on the upside. Interest rate differentials between Aussie and US bonds are appealing, and the Reserve Bank of Australia has recently boosted its economic forecast, noting improvements in growth and inflation.
Meanwhile, lacklustre economic data are piling up in US, and the Fed has backed off of its hawkishness. Since mid-May, the greenback has lost more than 5.2% on a trade-weighted basis, while the dollar index fell below 95, its lowest level since September 2016.