US FX WRAP: Dollar little changed as markets await US CPI/PPI

USD was choppy on Tuesday as geopolitical developments dictated oil price swings ahead of US CPI and PPI this week. USD failed to track the move higher in US 2yr yields and oil prices amid the Houthis hitting Saudi Arabia's energy facilities. The US Treasury's plans to increase buyback sizes of longer-dated nominal coupon securities, may still be acting as a dampening factor for the USD given the resurfacing of the debasement trade in recent weeks. As we await the likely determinants of the FOMC September meeting, CPI and PPI this week, the focus will be on geopolitical developments. Multiple explosions were heard across Iran, to which i24 News reported that the cause was US attacks on Iranian oil tankers. Iran had warned such attacks would be met with a response on US bases.

JPY extended its Labor Day strength that was likely exacerbated by thin liquidity. USD/JPY now trades lower around 153.87, seeing weakness through negative US-Iran headlines, breaking its usual positive correlation towards higher US yields. Today's data was also positive for the Yen, in which  Labour Cash Earnings was firmer than expected, with GDP Q2 revised up.

NZD was the G10 laggard on Tuesday, continuing to underperform vs AUD following the dovish RBNZ hike last week. AUD, EUR, GBP and CHF were all little changed. CAD saw modest strength despite Canada's retaliatory tariffs taking effect today. According to Radio-Canada, USTR Greer is to meet with Canadian trade minister Leblanc today.