The US Dollar (USD) is trading lower overall on the day, after easing back from its overnight peaks against the major currencies as global stocks and bonds slip, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
Bearish sentiment moderates but trend lower is intact
“A weak 40Y JGB auction appears to have weighed on bond market sentiment and stock markets are awaiting Nvidia results amid concerns about chip sector volatility. Month-end may still be a factor in short-term FX price moves. Earlier in the week, it had seemed as if some of the USD-negative headwinds were moderating; Treasurys had steadied and markets were perhaps coming round to the idea that President Trump’s tariff bark might be worse than its ultimate bite. But underlying fiscal worries remain as the president’s tax bill works its way through Congress.”
“Risk reversal pricing suggests some moderation in deeply bearish USD sentiment seen earlier this month but (BBDXY) riskies still reflect a solid skew in favour of dollar puts. Technical signals are supportive of some short-term stabilization in the USD but the broader bear trend in the USD (DXY) remains deeply entrenched across the short-, medium-, and long-term studies, suggesting that upside potential for the dollar generally remains quite limited. Overnight gains peaked around 99.87, effectively the lower end of the resistance zone (99.85/100.15) we highlighted yesterday. The RBNZ is the top performer on the session after the RBNZ cut rates to 3.25%, as expected.”
“But policymakers were split on the decision (1 dissenting vote) and the central bank signaled that policy was near neutral. Further rate cuts are likely but may be slower to emerge. Today sees the release of the Richmond Fed Manufacturing Index for May (forecast down but less negative than April’s –13), the auction of USD70bn in 5Y notes and the 7th May FOMC meeting minutes (likely reaffirming the cautious outlook for policy while tariff uncertainty persists). There are comments from BoE economist Pill and the Banxico releases its inflation report at 14.30ET. Australia releases private capex data tonight.”
