Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD lower as markets look to 50bps
The Australian dollar was higher, with the US dollar near 14-month lows, as markets accelerated their view that the Federal Reserve might cut interest rates by 50bps when it meets Wednesday night (APAC time).
The market pricing for a 50bps cut jumped from 49% to 71% over the last 24 hours (source Bloomberg) helped by commentary from former New York Fed present William Dudley that suggested the Fed should “go big now”.
The uncertainty around the decision means that FX markets could experience heightened volatility over the next 48 hours.
The AUD/USD gained 0.7% with the pair now less than one cent away from the 2024 highs.
The NZD/USD also gained 0.7%.
US retail sales due
Overnight, US data was stronger, with the Empire State manufacturing index, at +11.5, producing the best reading since April 2022.
Looking ahead to retail sales, after a robust 1.0% gain in July, we might see a 0.3% decline in headline retail sales in August. Our retail deflator estimate indicates that actual retail sales decreased by 0.2% during the month.
After a high print in July, auto sales decreased in the month. Along with the monthly reduction in fuel prices and demand, gas station sales also decreased. In August, nominal retail sales under “control” probably increased by 0.1%.
From oversold circumstances at the end of summer, the USD has steadied, but the near-term picture is still unclear.
After reaching its top at the end of June, DXY has dropped 4.9% and is now trading close to the lower half of the two-year range.
In terms of momentum, the downward move remains moderate in most markets, but more stretched in Asia, and close to oversold levels in USD/JPY (as measured by the relative strength index).
USD/SGD at ten-year lows ahead of NODX
The USD/SGD fell further yesterday, down 0.2%, and trading to the lowest level since November 2014.
As the global tech turnaround continues to boost electronics exports, we expect non-oil domestic export (NODX) growth to stay in double digits in August, at 11.6% y-o-y, after surging to 15.7% in July.
Meanwhile, pharmaceutical export growth should improve further as a result of increased production capacity. This suggests that following a spike of 12.2% in the previous month, NODX growth dropped to -5.3% month-over-month.
Singapore’s negative production gap has now closed even as inflation has decreased. As we approach the top of the SGD NEER policy band, the SGD’s gains might be becoming stretched.
Aussie back near highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 16 – 14 September
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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