BUY USD DIPS VS GBP/ NZD: DOVISH FED W. DUDLEY SPEECH HIGHLIGHTS
Fed Dudley was speaking At A joint New York Fed, Indonesian Central Bank Seminar On Sunday evening when he left a mixed impression for the markets to digest - saying "it is premature to rule out an interest-rate increase this year" but then on the contrary saying "Raising Rates Prematurely Would Be Riskier Than Moving Slightly Too Late" and following up that sentiment with "Investor Expectations For Flatter Path Of U.S. Interest Rates Seems 'Broadly Appropriate'" and pointing out the medium-term risks are seen skewed to the downside - all of which somewhat contradictory expecting a 2016 rate hike.
IMO these comments are more less positive news for the greenback, given the hawkish July Minutes should take precedent (despite the market weirdly selling the september hike being officially put on the table) and after the DXY lost every day last week I think it will struggle to continue this trend into this week as the drop in rate hike expectations/ fed funds rates should flatten out - Likely seeing the bulk of the dovish expectations price last week - september 25bps hike expectations fell from 25% at the beginning of the week to 12% on Friday following the miss GDP report - will likely bottom out around here to 8%min.
That said, given the BOJ's miss we could easily see further pressure on US rates this week as imo the failed big stimulus hopes are likely to fade the risk-on environment of late, and move us back into the safe haven trend that has dominated 2016 - so dont be surprised to see some more risk-off rate expectation USD selling/ bond buying - look out for consecutive moves higher in UST or moves lower in tnx.
In the medium term this still hasnt changed my view of bullish USD and at present IMO this selling wave has opened up the opp for some good USD buying entry points e.g. kiwi above 0.72, stelring at 1.33, and eur at 1.115 - kiwi and sterling the best trades as we move into RBA, BOE and RBNZ within the next 10 days which should realise considerable downside for kiwi and cable (and for those trading aussie too, tho i prefer the kiwi proxy).
Fed Dudley Speech Highlights:
-Fed's Dudley Warns It Is Premature To Rule Out an Interest-Rate Increase This Year
-Dudley Says Fed-Funds Futures Prices Seem 'Too Complacent'
-Dudley Says There Is 'Room For Improvement' in Fed Communications, But They Are Growing More Transparent
-Dudley Says His Baseline Outlook For U.S. Growth, Inflation 'Has Not Changed Much In Recent Months'
-Dudley Expects 2% Annualized U.S. Growth Over Next 18 Months
-Fed's Dudley Says Medium-Term Risks To Economy Are 'Somewhat Skewed To The Down Side'
-Dudley Says Brexit Impact Has Been Short Lived, But Longer Term Potential Fallout 'Hard To Gauge'
-Dudley Says Fed Takes Dollar Appreciation Into Consideration, But Not Targeting Any Set Exchange Value
-Dudley Says Evidence Accumulating The Crisis-Era Headwinds 'Are Likely To Prove More Persistent'
-Fed's Dudley Warns it is Premature to Rule out an Interest-Rate Increase This Year
-Dudley: Investor Expectations For Flatter Path Of U.S. Interest Rates Seems 'Broadly Appropriate'
-Dudley Says Raising Rates Prematurely Would Be Riskier Than Moving Slightly Too Late
IMO these comments are more less positive news for the greenback, given the hawkish July Minutes should take precedent (despite the market weirdly selling the september hike being officially put on the table) and after the DXY lost every day last week I think it will struggle to continue this trend into this week as the drop in rate hike expectations/ fed funds rates should flatten out - Likely seeing the bulk of the dovish expectations price last week - september 25bps hike expectations fell from 25% at the beginning of the week to 12% on Friday following the miss GDP report - will likely bottom out around here to 8%min.
That said, given the BOJ's miss we could easily see further pressure on US rates this week as imo the failed big stimulus hopes are likely to fade the risk-on environment of late, and move us back into the safe haven trend that has dominated 2016 - so dont be surprised to see some more risk-off rate expectation USD selling/ bond buying - look out for consecutive moves higher in UST or moves lower in tnx.
In the medium term this still hasnt changed my view of bullish USD and at present IMO this selling wave has opened up the opp for some good USD buying entry points e.g. kiwi above 0.72, stelring at 1.33, and eur at 1.115 - kiwi and sterling the best trades as we move into RBA, BOE and RBNZ within the next 10 days which should realise considerable downside for kiwi and cable (and for those trading aussie too, tho i prefer the kiwi proxy).
Fed Dudley Speech Highlights:
-Fed's Dudley Warns It Is Premature To Rule Out an Interest-Rate Increase This Year
-Dudley Says Fed-Funds Futures Prices Seem 'Too Complacent'
-Dudley Says There Is 'Room For Improvement' in Fed Communications, But They Are Growing More Transparent
-Dudley Says His Baseline Outlook For U.S. Growth, Inflation 'Has Not Changed Much In Recent Months'
-Dudley Expects 2% Annualized U.S. Growth Over Next 18 Months
-Fed's Dudley Says Medium-Term Risks To Economy Are 'Somewhat Skewed To The Down Side'
-Dudley Says Brexit Impact Has Been Short Lived, But Longer Term Potential Fallout 'Hard To Gauge'
-Dudley Says Fed Takes Dollar Appreciation Into Consideration, But Not Targeting Any Set Exchange Value
-Dudley Says Evidence Accumulating The Crisis-Era Headwinds 'Are Likely To Prove More Persistent'
-Fed's Dudley Warns it is Premature to Rule out an Interest-Rate Increase This Year
-Dudley: Investor Expectations For Flatter Path Of U.S. Interest Rates Seems 'Broadly Appropriate'
-Dudley Says Raising Rates Prematurely Would Be Riskier Than Moving Slightly Too Late
1. As expected/ suggest above, the body of the September rate hike expectation sell-off was priced in on friday and today we traded completely flat at 12% probability - same as fridays close.
- Hence USD should trade pretty flat this week (No more bleeding losses), with a slight topside bias as the string of 5-day losses last week is faded out on pure probability of days of consecutive losses and relatively low levels, both of whic making it unattractive for more sellers to move in - until the Employment report on friday though.
- USD micro we have RBA in 7 hours and BOE on thursday both of which are likely to see some USD buying as RBA imo is a 50/50 cut and boe is a 95/5 cut - i like being short kiwi, cable and sterlingyen (risky) going into these events.
- Employment report is the next risk for expectations (some PMIs in the mix but less weighting) - a shock to the up or downside will likely see us move into the mid 20s or mid 0-10.