US FX WRAP: Dollar slightly weaker as US yields track oil slump lower

USD was generally weaker against peers on Tuesday. Yields across the curve were lower amid the continued drop in oil as markets prepare for a return to pre-war Hormuz oil flows, starting from Friday. Fresh updates that added pressure to energy prices included Qatar reportedly to restore half of its LNG output a month after the Strait of Hormuz opens, and the US allowing Iran to sell oil/fuel immediately after the deal is signed. Outside of geopolitics, newsflow was light as the G7 summit ticks along. US housing starts sharply dropped 15.4% in May to a six-year low, weighed by higher mortgage rates. Meanwhile, import and export prices came in hotter-than-expected; USD was muted towards both data releases. As we await the US-Iran deal signing on Friday, the interim focus will be on Kevin Warsh's handling of the Fed in his first press conference as Chair. Expectations are for him not to participate in the dot plot and to lean dovish; however, an open-minded approach from Warsh would surprise markets and likely act as support for the dollar. The statement will likely see the Fed easing bias language removed and a lack of forward guidance. Click here for the Newsquawk Fed Preview.  DXY trades around 99.53 from an open of 99.64.

JPY and AUD were both little changed after their respective central bank rate decisions. The BoJ hiked rates as expected by 25bps to 1.00%, met with one dissenter, Asada. Tamura proposed tapering bond purchases by JPY 200bln per quarter from April 2027 onward, but the proposal was rejected by a majority vote. In the absence of Governor Ueda, Deputy Governor Uchida spoke, noting there is a risk of underlying inflation deviating upward to a level above the price target. 

For AUD, the RBA held the Cash Rate at 4.35%, as expected, but warned of potential further hikes if necessary, citing persistent inflation and oil supply disruptions. In the press conference, Governor Bullock said inflation remains too high, and the board is still concerned about inflation, but in a better position. AUD saw little reaction to the rate decision. Westpac, post-RBA, retained its view that "further cash rate increases are coming... if June inflation is strong, the next hike will be August."