US FX WRAP: Dollar fails to benefit from geopoltical risk

The dollar was modestly offered against major peers as the FX markets' risk appetite prevailed despite the rise in oil prices, global yields, and weakness across equities. Geopolitics has returned as a key risk for markets, with the latest strikes between the US and Iran, remarks from Trump, and the revocation of the Iranian oil sanctions waiver showcasing rapidly increasing tensions in the region. As it stands, strikes are seemingly set to continue, as suggested by both sides, and talks are to be brushed aside. Trump believes it's a"waste of time dealing with Iran", while TASS reported that "Iran suspends talks on a final settlement with the United States". That said, Trump continues to demonstrate an unpredictable nature, later in the session saying he doesn't think war with Iran will start again, which may provide a ceiling to any upside in the buck. On the macro picture, the FOMC Minutes provided very marginal weakness for the dollar, containing few extra details from what was provided in the hawkish June statement, Warsh press conference, and dot plot. WSJ's Nick Timiraos highlights that the minutes frame the committee's divide as a split over the outlook, not necessarily over tactics.

NZD led strength against the USD following the RBNZ decision to hike the OCR by 25bps to 2.5%. Whilst the decision was expected, the accompanying statement provided hawkish elements. The central bank said further OCR increases appear likely at upcoming meetings, albeit their timing is highly uncertain, and the committee assesses that the current OCR level remains accommodative. RBNZ Governor Breman estimates the neutral rate range at 2.5-3.5%, suggestive of further room for tightening to bring inflation to the 2% target midpoint. NZD/USD hit highs of 0.5720 before trimming to 0.5710.

JPY underperformed amid US yields tracking oil prices higher, which in turn weighed on the attractiveness of the carry trade. USD/JPY hit a peak of 162.71.

CHF also lagged as US yields rose, seeing similar performance to the buck and the Yen. The currency was little phased by commentary from SNB Chair Schlegel who reiterated a readiness to intervene in the FX market if necessary, and that the bar for negative interest rates is high, but if needed, they would do so.