US FX WRAP: Dollar rangebound as Yen lags

The Dollar Index was flat to start the week, in light newsflow, as ISM Services PMI and Fed’s Waller were the highlights, albeit little move was seen on either. The former saw the headline ease to 54.0 in June (exp. 54.2, prev. 54.5), while the Employment Index returned to expansion for the first time in four months, and the Prices Index encouragingly fell to 67.7 from 71.3, its lowest level since February. Fed Governor Waller, on forward guidance, which Chair Warsh is adverse to, said that it can speed the impact of monetary policy and be a valuable tool, but it can be a hindrance if it is too strong or rigid, and it is problematic when policymakers confront different economic outcomes all with a significant probability of occurring. Waller added that in some cases, it is best not to use forward guidance at all. Looking at the week ahead, the latest FOMC Minutes (Wed) and Fed’s Williams (Thurs) are arguably the highlights.

G10 FX was mixed against the Greenback, and without sounding like a broken record, in a day lacking headline catalysts. JPY was the clear underperformer as USD/JPY hit a peak of 162.42, while Antipodeans were mixed. The Aussie outperformed on carry demand, while NZD lagged as hawkish positioning unwound ahead of Wednesday’s RBNZ decision; as a reminder, money markets assign an 80% chance of a 25bps hike at the July meeting, lifting the OCR to 2.50% from 2.25%, in line with ANZ analysts. However, Westpac expects rates to remain unchanged while maintaining its tightening bias. Meanwhile, the NZIER Shadow Board recommended holding the OCR at 2.25%.

For the Loonie, the Q2 BoC survey was released, and the consumer survey showed inflation expectations declined after the Iran ceasefire was signed in mid-June, and that for the next 12 months, 54.6% of Canadians expect a recession (prev. 55.7% in Q1). Expectations for 5-year inflation rose to 3.39% (prev. 3.02% in Q1).