OCBC’s Sim Moh Siong and Christopher Wong note the US Dollar (USD) softened as Fed hike expectations moderated and the US yield curve steepened.
They argue that without a strong upside surprise in United States (US) Consumer Price Index (CPI), the USD should stay rangebound, supporting carry trades
Debasement concerns and scrutiny of Fed independence are seen underpinning Gold, while upcoming US CPI, PPI and retail sales will steer Fed expectations. Dollar tied to upcoming CPI data “The USD softened over the past week as Fed rate hike expectations moderated and the US yield curve steepened. Unless this week’s CPI report delivers a meaningful upside surprise, the USD is likely to remain trapped in narrow ranges.
July’s soft payrolls report should keep the Fed patient beyond September, with markets unlikely to price a September hike as the base case without a firmer inflation signal.” “In our view, core CPI would need to print at 0.3% MoM or higher in July, above the 0.2% consensus forecast, to materially lift expectations of a September rate hike. A rangebound USD, combined with a constructive risk backdrop, should continue to support carry trades despite ongoing volatility in oil markets. Oil prices eased on hopes that the Strait of Hormuz could reopen, but Iran’s firm conditions for Washington suggest any near-term boost to energy supply is likely to be limited.” “Meanwhile, debasement concerns have returned to the fore, adding pressure on the USD and helping gold rebound from what increasingly appears to be a floor near USD4,000/oz.