Analysts at TD Securities note that the DXY is again losing steam ahead of the key resistance levels as the consolidation in USDCNH has helped after policymakers increased the costs of selling CNH.
Key Quotes
“The goal is stability rather than a reversal in the currency, though reducing the pace of the USDCNH appreciation should feed into the G10 and broader risk sentiment given the 7% rally since the summer.”
“For the G10, we see three forces at work: US/China trade, global growth, and the credit cycle. The global growth dynamics and the credit cycle are key to the next move in the USD and whether the rally fizzles out or starts to turn as we expect. On the growth side, high-frequency data argue that the G10 story is recovering while the US story is looking fatigued.”
“The delta of the July PMIs shows that US growth is decelerating faster than the G10 average for the first time since Q417. We also note that the new orders component of the US ISM index contracted sharply over the past six months. The news from Reuters overnight that the BoJ wanted to hike rates twice this year argue that monpol is turning more hawkish, adding more evidence that the credit cycle is turning. We remain JPY bulls and like fading AUD rallies.”
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